-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Iv5nDLqwvy4If0HwiJcptHxN6d2ZYHiFUkQ2A/xnnLwJ3FhNxPuTpwbXDv4jVBI2 9i1a80zHN3mmxAzPZ3gXQg== /in/edgar/work/0000950134-00-008195/0000950134-00-008195.txt : 20000928 0000950134-00-008195.hdr.sgml : 20000928 ACCESSION NUMBER: 0000950134-00-008195 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000926 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELCOR CORP CENTRAL INDEX KEY: 0000032017 STANDARD INDUSTRIAL CLASSIFICATION: [2950 ] IRS NUMBER: 751217920 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-05341 FILM NUMBER: 728714 BUSINESS ADDRESS: STREET 1: 14643 DALLAS PKWY STE 1000 STREET 2: WELLINGTON CTR CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 9728510500 MAIL ADDRESS: STREET 1: WELLINGTON CENTRE STE 1000 STREET 2: 14643 DALLAS PKWY CITY: DALLAS STATE: TX ZIP: 75240-8871 FORMER COMPANY: FORMER CONFORMED NAME: ELCOR CHEMICAL CORP DATE OF NAME CHANGE: 19761119 10-K 1 d80378e10-k.txt FORM 10-K FOR FISCAL YEAR END JUNE 30, 2000 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-K --------------------- ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED JUNE 30, 2000 COMMISSION FILE NUMBER 1-5341 ELCOR CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 75-1217920 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 14643 DALLAS PARKWAY WELLINGTON CENTRE, SUITE 1000 DALLAS, TEXAS 75240-8871 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 851-0500 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ------------------------ Common Stock Par Value $1 per Share The New York Stock Exchange Rights to Purchase Series A Preferred Stock The New York Stock Exchange Securities Registered Pursuant to Section 12(g) of the Act: NONE - --------------------------------------------------------------------------------- (Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The aggregate market value of common stock held by nonaffiliates as of September 5, 2000, was $265,520,290. This amount is based on the closing price of the Registrant's Common Stock on the New York Stock Exchange on September 5, 2000. Shares of stock held by directors and officers of the Registrant as well as shares allocated to such persons under the Employee Stock Ownership Plan of the Registrant were not included in the above computation; however, the Registrant has made no determination that such entities are "Affiliates" within the meaning of Rule 405 under the Securities Act of 1933, as amended. As of the close of business on September 5, 2000, the Registrant had 19,522,684 shares of Common Stock outstanding. Documents incorporated by reference. Listed below are the documents, any portion of which are incorporated by reference and the parts of this report into which such portions are incorporated: PROXY STATEMENT DATED SEPTEMBER 20, 2000 PART III OF FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I Item 1. Business Elcor Corporation (Registrant), incorporated in 1965 as a Delaware corporation, is a publicly held corporation headquartered in Dallas, Texas. Shares of the Registrant's common stock are traded on the New York Stock Exchange with the ticker symbol - ELK. Lines of Business Roofing Products The Registrant, through Elk Corporation of Dallas and its subsidiaries (Elk), is engaged in the manufacture and sale of premium laminated fiberglass asphalt shingles and accessory roofing products. Elk also manufactures and sells nonwoven fiberglass roofing mats for use in manufacturing asphalt roofing products and nonwoven mats for use in other industrial applications. Elk's premium laminated fiberglass asphalt shingle manufacturing plants are located in Tuscaloosa, Alabama, Ennis, Texas, and Shafter, California. A fourth major laminated shingle plant in Myerstown, Pennsylvania is currently under construction. Limited production for this new plant is scheduled to begin in the December quarter of calendar year 2000. The Myerstown, Pennsylvania plant, which is housed in a 415,000 square foot building located on a 125 acre plant site, is expected to increase Elk's total laminated shingle capacity by approximately 38%. The major products manufactured at Elk's roofing plants are premium laminated fiberglass asphalt shingles sold under its brand names: Prestique(R) Plus, Prestique I, Prestique II and Capstone(R). In fiscal 1995, Elk introduced to its Prestique lines of premium laminated fiberglass asphalt shingles the patented Enhanced High Definition(R) and Raised Profile(TM) look. In addition, Elk also manufactures premium fiberglass asphalt hip and ridge products: Seal-a-Ridge(R) and Z(R) ridge brands. Other premium asphalt roofing and accessory products are currently under development. Elk's roofing products are sold by employee sales personnel primarily to roofing wholesale distributors, delivery being made by contract carrier or by customer vehicles from the manufacturing plants or warehouses. Elk's products are distributed nationwide with Texas, California and Florida representing the largest market areas. The roofing products segment accounted for approximately 87% of consolidated sales of the Registrant in fiscal 2000. Overall, asphalt shingles account for about 93% of the nation's sloped roof market. Premium laminated asphalt shingles account for approximately 40% of the residential sloped asphalt shingle roofing market. About 83% of all asphalt shingles are used in reroofing and remodeling and 17% are used in new construction. For the past several years, the building materials distribution industry has consolidated at a rapid pace with many smaller independent distributors being acquired by emerging larger national building products distributors. One customer, ABC Supply Co. Inc., the largest roofing wholesale distributor in the United States, accounted for 17% of consolidated sales in fiscal 2000, 18% of consolidated sales in fiscal 1999, and 16% of consolidated sales in fiscal 1998. 1 3 Elk operates two nonwoven fiberglass mat lines that run in parallel at its Ennis, Texas facility. Elk's nonwoven fiberglass roofing mat facilities supply all of its internal fiberglass roofing mat needs. In addition, roofing mats are sold by employee sales personnel to other asphalt roofing products manufacturers. Nonwoven mats are also sold to manufacturers of construction and industrial products who use such mats in their products, and to distributors of industrial filtration products. Elk's nonwoven mats are shipped by contract carrier to its other roofing plants and to its customers' locations. On September 15, 1998, Elk experienced an explosion at its fiberglass roofing mat plant in Ennis, Texas. The explosion significantly damaged a drying oven and caused less extensive damage to the remainder of one mat manufacturing line. There was no damage to the separate mat line that runs in parallel to the damaged line, nor was there any damage to Elk's Ennis, Texas shingle manufacturing plant. There were no injuries from the explosion. The damaged line was restored to partial operation in December 1998. By March 1999, the damaged section had been replaced. By June 1999, the line had resumed operating at line speeds equivalent to line speeds at the time of the explosion. Final settlement with the Registrant's insurance company was agreed upon in February 2000 with Elk receiving $17,017,000, which represented 97.3% of claimed losses and damages from the accident. Refer to the "Involuntary Conversion" footnote on page 36 of this Form 10-K for additional discussion of this matter. During fiscal 2000, Elk continued to make progress in developing a family of proprietary Versashield(TM) coated nonwoven products for use in a variety of industrial and consumer applications. A semi-commercial pilot manufacturing line is now supplying limited quantities of these products to initiate market development sales. Elk is also developing several new premium residential roofing products that the company believes to have good market potential. Electronics Manufacturing Services The electronics manufacturing services segment consists of the various operating subsidiaries of Cybershield, Inc. (collectively Cybershield). Due to the increasing materiality of the electronics manufacturing services business to the Registrant, its operations have been segregated into a separate segment as of June 30, 2000. These operations were previously included in the industrial products group. Accordingly, prior year segment data has been restated to reflect this change in reported segments. Cybershield accounted for 10% of consolidated sales in fiscal 2000. Cybershield is engaged in providing shielding solutions and other related value-added services to manufacturers of digital wireless cellular phones, telecommunications and other electronic equipment. Cybershield's conductive coatings and gaskets are designed to control the level of electromagnetic and radio frequency interference (EMI/RFI) emissions generated by microchips and electronic components. Cybershield's product offerings include selective and doubleside applications of electroless copper and nickel, conductive dispense gaskets which are formed in place, proprietary plating of die-cast magnesium components, decorative paint finishes, pad print, robotic conductive spray paints and vacuum metalization of plastic components. Sales are generated by employee sales personnel, with delivery made primarily by contract carrier. 2 4 In January 1999, Cybershield acquired YDK America, Inc., located in Canton, Georgia, a leading supplier to the computer industry of electroless conductive coatings for electronic plastic enclosures and components. This acquisition doubled Cybershield's electroless coating capacity and geographically reduced the source concentration risk for its customers. In June 1999, YDK America, Inc. was renamed Cybershield of Georgia, Inc. In fiscal 2000, the Canton, Georgia facility was expanded, doubling its plant size. Cybershield also made significant investments in automated manufacturing equipment at both of its manufacturing plants. Cybershield plans to expand its digital wireless cellular phone business to serve the European, Asian and Latin American markets over the next few years through acquisition or other business arrangements to better serve its customers' growing markets for digital wireless cellular phones and other digital wireless electronic products. Cybershield is currently reviewing options to establish operations in Europe in fiscal 2001 before pursuing other global growth opportunities. Industrial Products Chromium Corporation is engaged in the remanufacture of diesel engine cylinder liners, including hard chrome plating of cylinder bores and tin plating of pistons, primarily for the railroad and marine industries; and hard chrome plating of original equipment cylinder liners and tin plating of pistons for major domestic locomotive manufacturers. In the fourth quarter of fiscal 1999, Registrant's management approved a consolidation plan for Chromium's reciprocating engine components business. During fiscal 2000, all operations for this business activity in Lufkin, Texas were transferred to Chromium's Cleveland, Ohio plant. The Lufkin, Texas facility will be used exclusively for electronics manufacturing services operations. Another unit of the Registrant, OEL, LTD, d/b/a Ortloff Engineers, LTD (Ortloff) is engaged in providing technology licensing and engineering support services and in providing engineering consulting services to the oil and gas production, gas processing and sulfur recovery industries. Ortloff licenses technology covered by and related to patents owned by the Registrant for use in new or redesigned natural gas and refinery gas processing facilities, and utilizes technology licensed from others and its own expertise in the performance of consulting and engineering assignments. Ortloff continues to develop and patent improved processes for natural gas processing. Moreover, Ortloff offers significant expertise and other nonpatented technology associated with its processes that is difficult for customers to obtain on a cost effective basis from others. Ortloff has also been successful in expanding its markets into several parts of Latin America. Patent license fees are calculated by standard formulas that take into account both specific project criteria and market conditions, adjusted for special conditions that exist in a project. Engineering consulting assignments are performed under consulting services agreements at negotiated rates. Information as to Industry Segments For Financial Information by Company Segments, see the table on page 39 of this Annual Report on Form 10-K. 3 5 Accounting Change In fiscal 1999, the Registrant adopted Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities," issued by the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants. The cumulative effect of this change in accounting principle is reported on the Consolidated Statement of Operations. Competitive Conditions Roofing Products Even though the asphalt roofing products manufacturing business is highly competitive, the Registrant believes that Elk is a leading manufacturer of premium laminated fiberglass asphalt shingles. Elk has been able to compete successfully with its competitors, some of which are larger in size and have greater financial resources. There are a number of major national and regional manufacturers marketing their products in a portion or all of the market areas served by the Registrant's plants. The Registrant competes primarily on the basis of product quality, design and service. Typically, the Registrant is able to sell its roofing products at higher prices than its competitors receive for similar type products. Electronics Manufacturing Services The Registrant believes that Cybershield is the Western Hemisphere's leading provider of shielding solutions to the digital wireless telecommunications industry, serving both the handset and infrastructure segments of the industry. However, the Registrant believes it has smaller competitors serving specific portions of Cybershield's markets. During fiscal 2000, Cybershield diversified its customer base through the establishment of new relationships with several important manufacturers of cellular handsets. Cybershield's telecommunications customers include each of the four largest manufacturers of digital wireless phones and the three largest manufacturers of telephone infrastructure equipment in North America. During fiscal 2000, Cybershield's largest customer established a second production source for a portion of its cellular handset shielding requirements. The Registrant competes primarily on the basis of the breadth and quality of its product offering, design and service. Industrial Products The Registrant believes that Chromium is the leading remanufacturer of diesel engine cylinder liners and pistons for the railroad and marine transportation industries and is the primary supplier of hard chrome plated finishes for original equipment diesel engine cylinder liners to all of the major domestic locomotive manufacturers. The Registrant believes it has smaller competitors in the locomotive diesel engine cylinder liner remanufacturing market. Chromium has achieved a leading position in these markets through competition on the basis of product performance, quality, service and price. In addition, technical innovations that enhance quality and performance are also increasing the value-added content per unit produced. However, consolidation in the railroad industry and environmental regulations have fostered a competitive market with more economies of scale and scope. Accordingly, it may be desirable for Chromium to form strategic alliances with customers or others in the supply chain. 4 6 The Registrant believes that it holds significant state-of-the-art patents covering some of the most competitive processes for the cryogenic processing of refinery and natural gas streams to remove the higher value components, such as ethane and propane, which are primarily used as petrochemical feedstocks. The Registrant believes that Ortloff has widely recognized expertise in the design and operation of facilities for natural gas and refinery gas processing and sulfur recovery. Backlog Backlog was not significant, nor is it material, in the Registrant's operations. Raw Materials Roofing Products In the asphalt roofing products manufacturing business, the significant raw materials are ceramic coated granules, asphalt, glass fibers, resins and mineral filler. All of these materials are presently available from several sources and are in adequate supply. Historically, the Registrant has been able to pass some of the higher raw material and transportation costs through to the customer. However, in the second half of fiscal 2000, the Registrant was adversely affected by rapidly escalating asphalt and glass fiber costs. Even though price increases were implemented, higher selling prices subsequent to the raw material price increases did not fully offset the substantial increases in raw material costs. There is considerable pressure on pricing in the current market which may restrict the Registrant's ability to realize previous price increases. Electronics Manufacturing Services In the electroless shielding business, copper and nickel are the significant raw materials. These materials are presently available and in adequate supply. Industrial Products In the Registrant's business of hard chrome plating and remanufacturing diesel engine cylinder liners, chromic acid is a significant raw material which is presently available from a number of domestic suppliers. The Registrant believes these domestic suppliers obtain the ore for manufacturing chromic acid principally from sources outside the United States, some of which may be subject to political uncertainty. The Registrant has been advised by its suppliers that they maintain substantial inventories of chromic acid in order to minimize the potential effects of foreign interruption in ore supply. No raw materials are utilized in the Registrant's engineering consulting and technology licensing business. 5 7 Patents, Licenses, Franchises and Concessions The Registrant or its subsidiaries hold certain patents, particularly in its engineering consulting and licensing business, which are significant to its operations. However, the Registrant does not believe that the loss of any one of these patents or of any license, franchise or concession would have a material adverse effect on the Registrant's overall business operations. Environmental Matters The Registrant and its subsidiaries are subject to federal, state and local requirements regulating the discharge of materials into the environment, the handling and disposal of solid and hazardous wastes, and protection of the public health and the environment generally (collectively, Environmental Laws). Certain facilities of the Registrant's subsidiaries ship waste products to various waste management facilities for treatment or disposal. Governmental authorities have the power to require compliance with these Environmental Laws, and violators may be subject to civil or criminal penalties, injunctions or both. Third parties may also have the right to sue for damages and/or to enforce compliance and to require remediation of contamination. The Registrant and its subsidiaries are also subject to Environmental Laws that impose liability for the costs of cleaning up contamination resulting from past spills, disposal, and other releases of hazardous substances. In particular, an entity may be subject to liability under the Federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) and similar state laws that impose liability -- without a showing of fault, negligence, or regulatory violations -- for the generation, transportation or disposal of hazardous substances that have caused or may cause, environmental contamination. In addition, an entity could be liable for cleanup of property it owns or operates even if it did not contribute to the contamination of such property. From time to time, the Registrant or its subsidiaries may incur such remediation and related costs at the company owned plants and certain offsite locations. The Registrant anticipates that its subsidiaries will incur costs to comply with Environmental Laws, including remediating any existing non-compliance with such laws and achieving compliance with anticipated future standards for air emissions and reduction of waste streams. Such subsidiaries expend funds to minimize the discharge of materials into the environment and to comply with governmental regulations relating to the protection of the environment. Neither these expenditures nor other activities initiated to comply with Environmental Laws is expected to have a material impact on the consolidated financial position, net earnings or liquidity of the Registrant. Persons Employed At June 30, 2000, the Registrant and its subsidiaries had 1,166 employees. Of this total, 718 were employed in the roofing products business segment, 285 were employed in the electronics manufacturing services business segment, 129 were employed in the industrial products business segment, and 34 were employed at the corporate office. The Registrant believes that it has good relations with its employees. 6 8 Extended Payment Terms In some years, the Registrant's roofing products business provides extended payment terms to certain customers for some product shipments during the winter and early spring months, with payment generally due during the summer months. As of June 30, 2000, $8,369,000 in receivables relating to such shipments were outstanding, all of which were due and collected in the first three months of fiscal 2001. Seasonal Business The Registrant's electronics manufacturing services and industrial products businesses are substantially nonseasonal. The Registrant's roofing products manufacturing business is seasonal to the extent that cold, wet or icy weather conditions during the late fall and winter months in its marketing areas typically limit the installation of residential roofing products which causes sales to be slower during such periods. Damage to roofs from extreme weather such as severe wind, hurricanes and hail storms can result in higher demand for periods up to eighteen to twenty-four months depending upon the extent of roof damage. Working capital requirements and related borrowings fluctuate during the year because of seasonality. Generally, working capital requirements and borrowings are higher in the spring and summer months, and lower in the fall and winter months. Item 2. Properties All significant facilities are owned and unencumbered by liens in favor of nonaffiliates except as discussed herein. Roofing Products Asphalt roofing products are manufactured at plants located in Tuscaloosa, Alabama, Ennis, Texas and Shafter, California. A fourth major laminated shingle plant in Myerstown, Pennsylvania is under construction and is scheduled to begin limited production in the December quarter of calendar year 2000. Fiberglass roofing mat, nonwoven industrial, reinforcement and filtration products are manufactured on two parallel production lines located in Ennis, Texas. Corporate headquarters and administrative offices for the asphalt roofing products operations are located in the same leased facility as the Registrant's corporate offices in Dallas, Texas. Electronics Manufacturing Services Electronics manufacturing services operating facilities are located in Lufkin, Texas and Canton, Georgia. Corporate headquarters and most administrative offices for the electronics manufacturing services operations are located at the same leased facility as the Registrant's corporate offices in Dallas, Texas. Some administrative offices are located at the plant facilities. 7 9 Industrial Products The reciprocating engine components plant, which primarily is involved in the hard chrome plating of original equipment and remanufactured diesel engine cylinder liners and related equipment, is located in Cleveland, Ohio. In fiscal 2000, operations for the reciprocating engine components business were consolidated and all operations for this business activity were transferred to Cleveland, Ohio. The Lufkin, Texas facility is now used exclusively for Cybershield's electronics manufacturing services operations. Corporate headquarters and administrative offices are located at the Cleveland, Ohio manufacturing facility. The Ortloff engineering and process licensing group is located in leased offices in Midland, Texas. Corporate Offices The Registrant's corporate headquarters is located in leased offices in Dallas, Texas. In fiscal 2000, land and buildings in Waco, Texas, formerly used in the discontinued solid waste handling equipment manufacturing business, were sold. Item 3. Legal Proceedings Purported Class Action Litigation In February 2000, Wedgewood Knolls Condominium Association filed a purported class action in the United States District Court in Newark, New Jersey, which as amended names Elk Corporation of Texas and Elk Corporation of Alabama. The purported nationwide class would include purchasers or current owners of buildings with certain Elk asphalt shingles installed between January 1, 1980 and present. The suit alleges, among other things, that the shingles were uniformly defective. It seeks reformation of the limited warranty applicable to the shingles, and unspecified damages for breach of implied and written warranties and alleged unfair or deceptive trade practices on behalf of the plaintiff and the purported class. In June 2000, an individual homeowner filed a purported class action, Lastih v. Elk Corporation of Alabama, in the Judicial District of Hartford, Connecticut. In August 2000, Elk removed that case to the United States District Court in New Haven, Connecticut. The Lastih suit involves similar class allegations and claims to those asserted in the Wedgewood Knolls suit described above. Elk has denied the claims asserted in the Wedgewood Knolls and Lastih actions, and is vigorously defending these suits. Elk has denied that class certification is appropriate and intends to contest any attempts to certify such a class. The Registrant cannot predict whether these actions, which are both in early stages, will have a material adverse effect on its results of operations, financial position or liquidity. 8 10 GAF Patent Litigation For approximately five years, Elk Corporation of Dallas (Elk) has been in patent litigation with GAF Building Materials Corporation and related GAF entities (collectively, GAF). In August 2000, Elk and GAF reached an agreement to dismiss all remaining claims in the patent litigation, which is being finalized. Gibraltar Tort Litigation In 1995 and 1996, Chromium Corporation was sued in four separate tort lawsuits brought on behalf of numerous plaintiffs who alleged unspecified personal injuries and property damages associated with the former operation of a licensed hazardous waste treatment, storage and disposal facility in Smith County, Texas known as the Gibraltar facility. Chromium was sued as a generator of waste sent to the Gibraltar facility, along with numerous other generator defendants and current and former owners and operators of the facility. The plaintiffs non-suited or dismissed the generator defendants, including Chromium, from two of the cases. In June 1999, Chromium reached a settlement with plaintiffs in the remaining two cases, including Adams v. American Ecology Environmental Services Corporation, a case pending in Tarrant County (Texas) District Court. In December 1999, however, a new group of approximately 30 plaintiffs sought to intervene in the Adams suit and sued the generator defendants and others in an action, Cuba v. American Ecology Environmental Services Corporation filed in Rusk County (Texas) District Court. Since judgment has already been entered in Adams, no intervention occurred. The Cuba action in Rusk County remains pending. In June 2000, Chromium reached a settlement in an action it had filed against certain of its insurers seeking coverage in the Gibraltar litigation. The settlement requires the insurers to provide an ongoing defense of the Gibraltar litigation and to pay the majority of defense costs incurred in the Cuba suit. Cumulatively, the resolution of the settled Gibraltar litigation and related insurance coverage litigation did not, and the Cuba litigation is not expected to, have a material adverse effect on Registrant's results of operations, financial position or liquidity. Other There are various other lawsuits and claims pending against the Registrant and its subsidiaries arising in the ordinary course of their businesses. In the opinion of the Registrant's management based in part on advice of counsel, none of these actions should have a material adverse effect on the Registrant's consolidated results of operations, financial position, or liquidity. Item 4. Submission of Matters to a Vote of Security Holders Inapplicable. 9 11 Executive Officers of the Registrant Certain information concerning the Registrant's executive officers is set forth below:
Period Age as of Served Sept. 1, Name Title As Officer 2000 ---- ----- ---------- ---------- Harold K. Work Chairman of the Board, 18 years 67 Chief Executive Officer and President of Elcor Corporation; Chairman and Director of Elk Corporation of Dallas, a subsidiary, and Chairman and Director of its subsidiaries Richard J. Rosebery Vice Chairman, 25 years 65 Chief Financial and Administrative Officer of Elcor Corporation; Officer and Director of all subsidiaries except one, and Chairman and/or President of certain subsidiaries Harold R. Beattie, Jr. Vice President - Finance and 6 months 46 Treasurer of Elcor Corporation Leonard R. Harral Vice President and Chief 7 years 48 Accounting Officer of Elcor Corporation; Director of one subsidiary W. Greg Orler Vice President and 11 months 37 Chief Information Officer of Elcor Corporation David G. Sisler Vice President, General Counsel and 5 years 42 Secretary of Elcor Corporation; Officer of all subsidiaries; Director of one subsidiary James J. Waibel Vice President Administration 7 years 56 of Elcor Corporation
10 12 All of the executive officers except Mr. Beattie and Mr. Orler have been employed by the Registrant or its subsidiaries in responsible management positions for more than the past five years. In July 1996, Mr. Rosebery and Mr. Work were appointed as Directors of the Registrant. On August 18, 1997, Mr. Work and Mr. Rosebery were each elected as Vice Chairmen. On August 26, 1997, Mr. Work was elected as Chairman of the Board, President and Chief Executive Officer of the Registrant following the death on August 22, 1997 of Mr. Roy E. Campbell, who previously held those positions. On March 27, 2000, Mr. Beattie was elected by the Board of Directors as Vice President - Finance and Treasurer of the Registrant. Mr. Beattie was employed by Bank of America from 1977 to 2000, most recently as a Managing Director of Banc of America Securities LLC. On October 26, 1999, Mr. Orler was elected by the Board of Directors as Vice President and Chief Information Officer. Mr. Orler was employed by Koch Industries from 1986 to 2000, most recently as Vice President, Information Technology, for Koch Agriculture Company. Officers are elected annually by the Board of Directors. 11 13 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters The principal market on which the Registrant's common stock is traded is the New York Stock Exchange. Registrant's common stock is also traded on the Boston, Midwest and Philadelphia Stock Exchanges. There were 957 holders of record and approximately 4,500 beneficial shareholders of the Registrant's common stock at September 5, 2000. The quarterly dividend declared per share and the high and low prices in dollars per share on Registrant's common stock for each quarter during fiscal year 2000 and fiscal year 1999, adjusted for a three-for-two stock split paid in August 1999, are set forth in the following tables:
Period Dividend High Low ------ -------- ---- --- Fiscal 2000 First Quarter $.05 $30.27 $19.19 Second Quarter $.05 $34.94 $23.25 Third Quarter $.05 $39.63 $26.50 Fourth Quarter $.05 $37.63 $15.75 Fiscal 1999 First Quarter $ .047 $17.00 $12.88 Second Quarter $ .047 $21.92 $13.13 Third Quarter $ .047 $25.50 $19.92 Fourth Quarter $ .05 $29.33 $21.38
In September 1998, the Registrant's Board of Directors authorized the purchase of up to $10,000,000 of common shares from time to time on the open market to be used for general corporate purposes. As of August 28, 2000, 247,990 shares with cumulative cost of $4,461,000 had been repurchased under the repurchase program. On August 28, 2000, the Board of Director authorized the repurchase of up to an additional $10,000,000 of common stock, raising the total current authorization at that date to $15,539,000. In June 1999, the regular quarterly cash dividend was increased to $.05 per common share (after giving effect to a stock split) and a three-for-two stock split payable in the form of a stock dividend was declared, to be distributed on August 11, 1999 to shareholders of record on July 15, 1999. The limitations affecting the future payment of dividends by Registrant imposed as a part of the Registrant's revolving credit facility are discussed under the caption "Notes to Consolidated Financial Statements" under the heading "Long-Term Debt" on page 31 and 32 of this Annual Report on Form 10-K. 12 14 Item 6. Selected Financial Data The following selected consolidated financial data for each of the five years in the period ended June 30, 2000 have been derived from the audited consolidated financial statements of the Registrant included herein. The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto included elsewhere in this report. FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
($ In thousands, except per share data) Year Ended June 30, - -------------------------------------- ------------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Sales $350,275 $317,874 $268,178 $230,756 $196,462 ======== ======== ======== ======== ======== Income: Before cumulative effect of accounting change $ 29,932 $ 25,283 $ 18,324 $ 12,276 $ 10,676 Cumulative effect of accounting change -- (4,340) -- -- -- -------- -------- -------- -------- -------- Net Income $ 29,932 $ 20,943 $ 18,324 $ 12,276 $ 10,676 ======== ======== ======== ======== ======== Income Per Share Before Cumulative Effect Of Accounting Change - Basic $ 1.53 $ 1.29 $ .92 $ .62 $ .54 ======== ======== ======== ======== ======== Income Per Share Before Cumulative Effect Of Accounting Change - Diluted $ 1.49 $ 1.27 $ .90 $ .62 $ .53 ======== ======== ======== ======== ======== Net Income Per Share - Basic $ 1.53 $ 1.07 $ .92 $ .62 $ .54 ======== ======== ======== ======== ======== Net Income Per Share - Diluted $ 1.49 $ 1.05 $ .90 $ .62 $ .53 ======== ======== ======== ======== ======== Total Assets $322,574 $252,182 $217,044 $206,449 $192,060 ======== ======== ======== ======== ======== Long-Term Debt $ 91,300 $ 63,000 $ 48,000 $ 52,600 $ 53,000 ======== ======== ======== ======== ======== Shareholders' Equity $161,904 $137,251 $125,956 $111,986 $102,130 ======== ======== ======== ======== ======== Cash Dividends Per Share $ .20 $ .19 $ .16 $ .13 $ .11 ======== ======== ======== ======== ========
13 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS OPERATING SEGMENTS In accordance with the requirements of FASB SFAS No. 131, the Registrant is segregated into the following segments: Roofing Products, Electronics Manufacturing Services and Industrial Products. The Roofing Products Group consists of the various operating subsidiaries of Elk Corporation of Dallas (collectively Elk). These companies manufacture and sell premium laminated fiberglass asphalt residential and accessory roofing products, together with coated and uncoated nonwoven mats used in manufacturing asphalt roofing products and various industrial applications. Elk accounted for 87% of consolidated sales in fiscal 2000. The Electronics Manufacturing Services segment consists of the various operating subsidiaries of Cybershield, Inc. (collectively Cybershield). These companies are engaged in the shielding of plastic components, conductive dispense gaskets, vacuum metalization and other value added services for the telecommunications, computer and electronic equipment industries. Due to the increasing materiality of the Electronic Manufacturing Services business to the Registrant, its operations have been segregated into a separate segment as of June 30, 2000. These operations were previously included in the Industrial Products Group. Cybershield accounted for 10% of consolidated sales in fiscal 2000. The Industrial Products Group is comprised of: (1) remanufactured reciprocating engine components used in the railroad and marine transportation industries; and (2) technology licensing and consulting services for the natural gas processing industry. The Industrial Products Group companies accounted for 3% of consolidated sales in fiscal 2000. FISCAL 2000 COMPARED TO FISCAL 1999 OVERALL PERFORMANCE During the fiscal year ended June 30, 2000, net income before last year's cumulative effect of a change in accounting principle increased 18% to $29,932,000 from $25,283,000 in fiscal 1999. Sales increased 10% to $350,275,000 in the current fiscal year compared to $317,874,000 in the prior year. The Registrant's largest business segment, Roofing Products, registered a strong year with overall higher sales and operating income. This improved financial performance, together with increasing demand for products used in digital wireless cellular phones offered by the Electronics Manufacturing Services segment, led to the overall increases in consolidated sales and income. The growth in these two business segments was partially offset by disappointing operating results in the Industrial Products segment. Overall, operating income increased 16% to $48,059,000 in fiscal 2000 from $41,505,000 in the prior fiscal year. As a percentage of sales, operating income was 13.7% in fiscal 2000 compared to 13.1% in fiscal 1999. Selling, general and administrative (SG&A) costs in fiscal 2000 were nearly equal to that in the prior fiscal year. However, as a percentage of sales, SG&A costs were only 11.3% of sales in fiscal 2000 compared to 12.5% in the prior year. 14 16 During the fiscal year ended June 30, 2000, the Registrant recorded a $1,292,000 gain from involuntary conversion as a result of payments received on a property insurance claim in excess of the net book value of destroyed assets. Interest expense was $1,355,000 in fiscal 2000 compared to $2,059,000 in the prior fiscal year as the Registrant capitalized $2,708,000 of interest in the current year period in connection with the construction of its new Myerstown, Pennsylvania shingle plant and other major projects. In fiscal 1999, $595,000 in interest costs were capitalized. RESULTS OF BUSINESS SEGMENTS Sales for the Roofing Products Group increased 9% to $305,396,000 for the fiscal year ended June 30, 2000 compared to $278,918,000 in the prior fiscal year. Demand for and shipments of premium laminated fiberglass asphalt shingles were at record levels in the first nine months of fiscal 2000 even with shipments of these products being held down by lower laminated shingle inventories. The inventory shortage was partially due to manufacturing inefficiencies related to Elk's use of alternative sources of nonwoven fiberglass mat in its manufacturing process as a result of an explosion in fiscal 1999 at Elk's nonwoven fiberglass mat plant in Ennis, Texas. In addition, shipments resulting from large orders from customers in March 2000 made in anticipation of announced price increases substantially decreased shipments of laminated shingle shipments in the early part of the fourth quarter of fiscal 2000. Despite the inventory shortage early in the year and the decrease in shipments for a portion of the fourth quarter, in fiscal 2000 Elk still achieved a small increase in shipments of premium laminated fiberglass asphalt shingles compared to fiscal 1999. Average selling prices were slightly higher in fiscal 2000 than in fiscal 1999. Elk also registered increased sales for nonwoven mats used in manufacturing asphalt roofing products and various industrial applications. Operating income for the Roofing Products Group increased 18% in fiscal 2000 to $53,024,000 from $45,061,000 in the prior fiscal year. Together with increased sales, Elk achieved higher production, which lowered per unit manufacturing costs. In the second half of fiscal 2000, operating income was adversely affected by rapidly escalating asphalt and glass fiber costs. Elk implemented price increases on March 27, 2000 and May 1, 2000 as a result of these higher raw material costs. However, higher selling prices subsequent to these price increases did not fully offset the substantial increases in raw material costs. Further, competitive pressures have limited Elk's ability to implement further price increases. Operating income for fiscal 2000 also included $3,478,000 of income relating to settlement of the Registrant's business interruption claim caused by the fiscal 1999 plant explosion. Sales for the Electronics Manufacturing Services Group increased 49% to $33,420,000 for the fiscal year ended June 30, 2000 compared to $22,367,000 in fiscal 1999. Operating income for the Electronics Manufacturing Services Group increased 45% to $4,904,000 in fiscal 2000 from $3,384,000 in fiscal 1999. The increases in sales and operating income reflect increased demand for Cybershield's advanced shielding products and related services for the digital wireless cellular phone industry. The current year results include a full year of operations for Cybershield's Canton, Georgia operation, which was acquired in January 1999. 15 17 Cybershield's sales and operating income in the latter part of fiscal 2000 were held down by actions of a significant customer to establish a second production source for a portion of its cellular handset shielding requirements, and temporary delays in the production launch by another key customer of a new cellular handset which contains significant Cybershield value-added content. These actions had a further negative effect on Cybershield's operating margins as staffing had been increased to accommodate the production volumes which were changed or temporarily delayed. Cybershield plans to expand its digital wireless cellular phone business to serve the European, Asian and Latin American markets over the next few years through acquisition or other business arrangements to better serve its customers' growing markets for digital wireless cellular phones and other digital wireless electronic products. Cybershield is currently reviewing options to establish operations in Europe in fiscal 2001 before pursuing other global growth opportunities. Sales for the Industrial Products Group decreased 31% in fiscal 2000 to $11,300,000 from $16,449,000 in the prior fiscal year. The operating loss for the Industrial Products Group for fiscal 2000 was $4,653,000 compared to an operating profit of $182,000 last year. In fiscal 2000, Chromium Corporation's sales decreased 32% compared to the prior year as a result of the relocation of manufacturing facilities for remanufactured diesel engine components used in the railroad and marine transportation industries and the impact of the consolidation of its manufacturing operations. Chromium was unable to fulfill demand for its remanufactured diesel engine components used in the railroad and marine transportation industries during the period when its facilities were being consolidated. Primarily as a result of about $3,400,000 nonrecurring expenses relating to the consolidation of its manufacturing operations, Chromium recorded a significant operating loss in fiscal 2000 compared to a small operating profit achieved in the same period last year. Revenues and operating results for Ortloff's patent licensing and engineering consulting services were also lower in fiscal 2000 compared to the prior fiscal year. FISCAL 1999 COMPARED TO FISCAL 1998 OVERALL PERFORMANCE During the fiscal year ended June 30, 1999, income before the cumulative effect of a change in accounting principle increased 38% to $25,283,000 from $18,324,000 in fiscal 1998. Sales increased 19% compared to the prior fiscal year. The increases in sales and income before the accounting change were primarily the result of increased production, a record level of shipments of premium laminated fiberglass asphalt shingles, and accelerating demand for Cybershield's products used in digital wireless cellular phones. In the first quarter of fiscal 1999, the Registrant adopted Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities," issued by the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants, which resulted in a $4,340,000 charge, net of tax, for the cumulative effect of this accounting change. This one-time cumulative charge reduced net income for fiscal 1999 to $20,943,000 compared to $18,324,000 in the prior fiscal year. 16 18 Operating margin as a percentage of sales improved to 13.1% in fiscal 1999 compared to 11.4% in fiscal 1998. Selling, general and administrative (SG&A) costs in fiscal 1999 increased 13.5% from fiscal 1998, primarily as a result of increased business activity. As a percentage of sales, SG&A costs in fiscal 1999 declined to 12.5% of sales from 13.0% in fiscal 1998. Interest expense in fiscal 1999 was $2,059,000 compared to $2,577,000 in fiscal 1998. In fiscal 1999, the Registrant capitalized $595,000 in interest costs in connection with the construction of major projects, compared to $160,000 capitalized in fiscal 1998. RESULTS OF BUSINESS SEGMENTS Sales for the Roofing Products Group increased 22% in fiscal 1999 to $278,918,000 from $229,475,000 in fiscal 1998. Each of the Registrant's three roofing plants recorded increased sales as a result of strong demand in most regions of the United States. Elk's shipments were aided by relatively mild weather during the winter months (which permitted increased roofing activity in Elk's seasonally slower period) together with sharply higher demand throughout the fiscal year in the residential roofing replacement market. Average selling prices were slightly higher in fiscal 1999 compared to fiscal 1998 and customer discounts were lower. Operating income for the Roofing Products Group increased 81% in fiscal 1999 to $45,061,000 from $24,885,000 in fiscal 1998. Each of the three roofing plants achieved significantly higher operating income in fiscal 1999 as compared to fiscal 1998 as a result of increased manufacturing output and a record level of shipments of premium laminated fiberglass asphalt shingles. Elk's nonwoven fiberglass roofing mat plant also contributed to improved results for the Roofing Products Group. However, a dryer on one production line was damaged by an explosion on September 15, 1998 and the damaged line was shut down or ran at curtailed line speeds for much of fiscal 1999. Due to the Registrant's property damage and business interruption insurance policies, this explosion did not have a material effect on the Registrant's results of operations, financial position or liquidity in fiscal 1999. As of June 1999, the plant was again running at line speeds equivalent to line speeds at the time of the explosion. Sales for the Electronics Manufacturing Services Group increased 65% in fiscal 1999 to $22,367,000 from $13,544,000 in fiscal 1998. However, operating income decreased slightly to $3,384,000 in fiscal 1999 from $3,650,000 in fiscal 1998. During fiscal 1999, the Registrant continued to benefit from strong demand for Cybershield's conductive coatings and formed-in-place dispense gaskets used in digital wireless cellular phones and other electronic products. On January 11, 1999, a subsidiary of the Registrant acquired YDK America, Inc. (renamed Cybershield of Georgia, Inc. in June 1999). Operations of this acquired company were included in fiscal 1999 operations subsequent to its acquisition. The small decrease in operating income in fiscal 1999 was primarily the result of a loss incurred at this new facility in the latter part of fiscal 1999. Sales for the Industrial Products Group decreased 34% in fiscal 1999 to $16,449,000 from $25,042,000 in fiscal 1998. Operating income for this Group decreased to $182,000 in fiscal 1999 from $7,130,000 in fiscal 1998. Chromium experienced lower demand for remanufactured large diesel engine components used in the railroad and marine transportation industries, due primarily to further consolidation of the railroad industry and a reduction in 17 19 maintenance requirements by some of its customers. Severance costs of $375,000 relating to terminating employees at its Lufkin, Texas facility were recorded in fiscal 1999. In the fourth quarter of fiscal 1999, Chromium also recorded a $250,000 pretax charge to settle some long-standing third party tort litigation. Ortloff's patent licensing and engineering consulting services to the petroleum industry were significantly lower in fiscal 1999 as a result of depressed oil prices during much of the fiscal year, causing many of its customers to temporarily reduce capital spending plans. LIQUIDITY AND CAPITAL RESOURCES During fiscal 2000, the Registrant generated cash flows of $45,020,000 from operating activities. Working capital requirements decreased by about 4%, primarily due to higher accounts payable and lower other current assets, partially offset by higher inventories. The higher level of accounts payable was primarily attributable to increased liabilities associated with the construction of a new roofing plant and changes in debt management procedures. Lower other current assets primarily reflect collections from and final settlement in February 2000 with an insurance company related to the explosion at its fiberglass roofing mat plant that occurred in Ennis, Texas in fiscal 1999. Inventories were significantly higher at June 30, 2000 than at June 30, 1999. Finished goods inventory levels at Elk reflect higher production at the Registrant's roofing plants in fiscal 2000 compared to fiscal 1999, combined with a reduction in shipments in the fourth quarter of fiscal 2000 compared to the prior fiscal year. However, finished goods inventory levels were extremely low at the end of the prior fiscal year due to very high levels of shipments in late fiscal 1999, combined with manufacturing inefficiencies related to the use of alternative sources of nonwoven fiberglass mat in Elk's manufacturing process necessitated by the nonwoven mat plant accident in fiscal 1999. Trade receivables were lower at June 30, 2000 than at the end of the prior fiscal year. This decrease was primarily the result of lower sales volumes in the latter part of fiscal 2000, partially offset by higher deferred receivables. At June 30, 2000, deferred term receivables from promotional programs to certain customers were $8,369,000 compared to $3,468,000 at the end of the prior fiscal year. Deferred receivables outstanding at June 30, 2000 are primarily due during the first three months of fiscal 2001. The current ratio was 2.6 to 1 at June 30, 2000 compared to 3.3 at June 30, 1999. Historically, working capital requirements fluctuate during the year because of seasonality in some market areas. Generally, working capital requirements and related borrowings are higher in the spring and summer months, and lower in the fall and winter months. The Registrant used $67,525,000 for net investing activities in fiscal 2000. Most expenditures were for additions to property, plant and equipment. About $52,000,000 of capital expenditures in fiscal 2000 were for the purchase of land and construction costs relating to the new Myerstown, Pennsylvania premium laminated fiberglass asphalt shingle plant. This new facility is expected to be completed in fall 2000 with manufacturing operations scheduled to begin in the December 2000 quarter. The Myerstown plant is expected to increase the Registrant's overall laminated shingle capacity by about 38%. The Registrant plans to continue its significant expansion plan over the next several years. Expansion plans include completion of 18 20 its fourth roofing plant currently under construction, evaluation of the need for a fifth roofing plant in two to three years, expanding capacity and improving productivity at existing plants, installing production lines for new products, and increasing capacity for Cybershield's digital wireless cellular phone business, including international expansion. Cash flows from financing activities were $23,021,000 during fiscal 2000, primarily resulting from a $28,300,000 increase in long-term debt. Long-term debt represented 36% of the $253,204,000 of invested capital (long-term debt plus shareholders' equity) at June 30, 2000. In September 1998, the Registrant's Board of Directors authorized the purchase of up to $10,000,000 of common stock from time to time on the open market to be used for general corporate purposes. As of June 30, 2000, 224,990 shares with a cumulative cost of $3,931,000 had been repurchased under this authorization. Effective January 5, 2000, the Registrant increased its revolving credit facility from $100,000,000 to $125,000,000 and extended the facility to December 15, 2004 to support its capital expansion program. Management is currently considering further increasing its revolving credit facility and believes it can secure additional capital to support its growth and expansion plans. Management believes that current cash and cash equivalents, projected cash flows from operations, combined with an increased unsecured revolving credit facility should be sufficient during fiscal 2001 and beyond to fund its expansion plans, working capital needs, dividends, stock repurchases and other cash requirements. The Registrant's operations are subject to extensive federal, state and local laws and regulations relating to environmental matters. Although the Registrant does not believe it will be required to expend amounts which will have a material adverse effect on the Registrant's consolidated financial position or results of operations by reason of environmental laws and regulations, such laws and regulations are frequently changed and could result in significantly increased cost of compliance. Further, certain of the Registrant's industrial products and electronics manufacturing services operations utilize hazardous materials in their production processes. As a result, the Registrant incurs costs for remediation activities off-site and at its facilities from time to time. The Registrant establishes and maintains reserves for such remediation activities, when appropriate. Current reserves established for known or probable remediation activities are not material to the Registrant's financial position or results of operations. NEW ACCOUNTING STANDARDS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." At June 30, 2000, the Registrant had entered into no significant derivative instruments or hedging activities, although the Registrant regularly reviews the potential benefits of interest rate swaps and other potential hedging arrangements and may enter into derivative or hedging instruments from time to time in the future. 19 21 The Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition," in December 1999. The Registrant is required to adopt this new accounting guidance no later than the fourth quarter of fiscal 2001. The Registrant is evaluating the conceptual guidance provided by SAB No. 101, but does not believe the adoption of guidance provided by SAB No. 101 will have a material impact on future operating results. YEAR 2000 ISSUE As of June 30, 2000, the Registrant has experienced no significant problems relating to its Year 2000 readiness. The Registrant continues to monitor activities within the company and with its suppliers and other third parties. FORWARD - LOOKING STATEMENTS In an effort to give investors a well-rounded view of the Registrant's current condition and future opportunities, management's discussion and analysis and the results of operations and financial condition and other sections of this Form 10-K contain "forward-looking statements" about its prospects for the future. The statements that are not historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements usually are accompanied by words such as "outlook," "believe," "estimate," "plan," "project," "expect," "anticipate," "predict," "could," "should," "may," or similar words that convey the uncertainty of future events or outcomes. These statements are based on judgments the Registrant believes are reasonable; however, the Registrant's actual results could differ materially from those discussed here. Such risks and uncertainties include, but are not limited to, the following: 1. The Registrant's roofing products business is substantially non-cyclical, but can be affected by weather, the availability of financing and general economic conditions. In addition, the asphalt roofing products manufacturing business is highly competitive. Actions of competitors, including changes in pricing, or slowing demand for asphalt roofing products due to general or industry economic conditions or the amount of inclement weather could result in decreased demand for the Registrant 's products, lower prices received or reduced utilization of plant facilities. Further, changes in building codes and other standards from time to time can cause changes in demand, or increases in costs that may not be passed through to customers. 2. In the asphalt roofing products business, the significant raw materials are ceramic coated granules, asphalt, glass fibers, resins and mineral filler. Increased costs of raw materials can result in reduced margins, as can higher trucking and rail costs. Historically, the Registrant has been able to pass some of the higher raw material and transportation costs through to the customer. Should the Registrant be unable to recover higher raw material and/or transportation costs from price increases of its products, operating results could be adversely affected and/or lower than projected. 20 22 3. The Registrant plans to continue its significant expansion plan over the next several years, including the construction of new facilities. Progress in achieving anticipated operating efficiencies and financial results is difficult to predict for new plant facilities. If such progress is slower than anticipated, if substantial cost overruns occur in building new plants, or if demand for products produced at new plants does not meet current expectations, operating results could be adversely affected. 4. Certain facilities of the Registrant's electronics manufacturing services and industrial products subsidiaries must utilize hazardous materials in their production process. As a result, the Registrant could incur costs for remediation activities at its facilities or off-site, and other related exposures from time to time in excess of established reserves for such activities. 5. The Registrant's litigation, including Elk's defense of purported class action lawsuits, is subject to inherent and case-specific uncertainty. The outcome of such litigation depends on numerous interrelated factors, many of which cannot be predicted. 6. Although the Registrant currently anticipates that most of its needs for new capital in the near future will be met with internally generated funds or borrowings under its available credit facilities, significant increases in interest rates could substantially affect its borrowing costs under its existing loan facility, or its cost of alternative sources of capital. 7. Each of the Registrant's businesses, especially Cybershield's shielding business, is subject to the risks of technological changes that could affect the demand for or the relative cost of the Registrant's products and services, or the method and profitability of the method of distribution or delivery of such products and services. In addition, the Registrant's businesses each could suffer significant setbacks in revenues and operating income if it lost one or more of its largest customers, or if its customers' plans and/or markets should change significantly. 8. Although the Registrant insures itself against physical loss to its manufacturing facilities, including business interruption losses, natural or other disasters and accidents, including but not limited to fire, earthquake, damaging winds and explosions, operating results could be adversely affected if any of its manufacturing facilities became inoperable for an extended period of time due to such events. 21 23 9. Each of the Registrant's businesses is actively involved in the development of new products, processes and services which are expected to contribute to the Registrant's ongoing long-term growth and earnings. If such development activities are not successful, or the Registrant cannot provide the requisite financial and other resources to successfully commercialize such developments, the growth of future sales and earnings may be adversely affected. Parties are cautioned not to rely on any such forward-looking beliefs or judgments in making investment decisions. Item 7A. Quantitative and Qualitative Disclosures about Market Risk The Registrant's exposure to market risk from changes in foreign currency risk is not material. The Registrant's outstanding debt has a variable interest rate. Changes in market rates effect interest paid by the Registrant. The Registrant has not entered into any significant derivative instruments or hedging activities, although the Registrant regularly reviews the potential benefits of interest rate swap arrangements and other hedging activities and may enter into derivative instruments from time to time in the future. Item 8. Financial Statements and Supplemental Data Index to Financial Statements and Financial Statement Schedule
Financial Statements: Page Independent Auditors' Report 23 Consolidated Balance Sheet at June 30, 2000 and 1999 24 Consolidated Statement of Operations for the years ended June 30, 2000, 1999, and 1998 25 Consolidated Statement of Cash Flows for the years ended June 30, 2000, 1999, and 1998 26 Consolidated Statement of Shareholders' Equity for the years ended June 30, 2000, 1999, and 1998 27 Notes to Consolidated Financial Statements 28 Financial Statement Schedule: Independent Auditors' Report 40 Schedule II - Consolidated Valuation and Qualifying Accounts and Reserves 41
All other schedules are omitted because they are not required, are not applicable, or the information is included in the financial statements or notes thereto. 22 24 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors, Elcor Corporation We have audited the accompanying consolidated balance sheets of Elcor Corporation (a Delaware corporation) and subsidiaries as of June 30, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years ended June 30, 2000. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Elcor Corporation and subsidiaries as of June 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years ended June 30, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP ------------------------ Arthur Andersen LLP Dallas, Texas August 14, 2000 23 25 CONSOLIDATED BALANCE SHEET
($ In thousands) June 30, -------- ASSETS 2000 1999 ---- ---- CURRENT ASSETS Cash and cash equivalents $ 4,702 $ 4,186 Trade receivables, less allowance of $963 and $967 71,712 72,866 Inventories 40,965 25,770 Prepaid expenses, insurance receivable and other 4,312 8,352 Deferred income taxes 2,822 2,111 --------- --------- Total current assets 124,513 113,285 --------- --------- PROPERTY, PLANT AND EQUIPMENT, AT COST Land 6,436 2,789 Buildings 44,871 42,775 Machinery and equipment 150,759 147,923 Construction in progress 76,962 19,217 --------- --------- 279,028 212,704 Less - Accumulated depreciation (83,924) (76,984) --------- --------- Property, plant and equipment, net 195,104 135,720 --------- --------- OTHER ASSETS 2,957 3,177 --------- --------- $ 322,574 $ 252,182 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 36,034 $ 18,067 Accrued liabilities 12,253 15,817 --------- --------- Total current liabilities 48,287 33,884 --------- --------- LONG-TERM DEBT 91,300 63,000 --------- --------- DEFERRED INCOME TAXES 21,083 18,047 --------- --------- COMMITMENTS AND CONTINGENCIES (See Note) SHAREHOLDERS' EQUITY Common stock ($1 par, 19,988,074 and 19,988,354 shares issued) 19,988 19,988 Paid-in capital 58,480 59,586 Retained earnings 90,641 64,632 --------- --------- 169,109 144,206 Less - Treasury stock (436,395 and 465,149 shares at cost) (7,205) (6,955) --------- --------- Total shareholders' equity 161,904 137,251 --------- --------- $ 322,574 $ 252,182 ========= =========
================================================================================ The Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of this statement. 24 26 CONSOLIDATED STATEMENT OF OPERATIONS
($ In thousands, except per share data) Year Ended June 30, ------------------- 2000 1999 1998 --------- --------- --------- SALES $ 350,275 $ 317,874 $ 268,178 --------- --------- --------- COSTS AND EXPENSES Cost of goods sold 262,517 236,670 202,627 Selling, general and administrative 39,699 39,699 34,962 --------- --------- --------- INCOME FROM OPERATIONS 48,059 41,505 30,589 --------- --------- --------- OTHER INCOME (EXPENSE) Interest expense (1,355) (2,059) (2,577) Gain from involuntary conversion 1,292 -- -- Other 193 84 446 --------- --------- --------- INCOME BEFORE INCOME TAXES 48,189 39,530 28,458 Provision for income taxes 18,257 14,247 10,134 --------- --------- --------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 29,932 25,283 18,324 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- (4,340) -- --------- --------- --------- NET INCOME $ 29,932 $ 20,943 $ 18,324 ========= ========= ========= INCOME PER COMMON SHARE-BASIC: Before cumulative effect of change in accounting principle $ 1.53 $ 1.29 $ .92 Cumulative effect of change in accounting principle -- (.22) -- --------- --------- --------- Net income per share $ 1.53 $ 1.07 $ .92 ========= ========= ========= INCOME PER COMMON SHARE-DILUTED: Before cumulative effect of change in accounting principle $ 1.49 $ 1.27 $ .90 Cumulative effect of change in accounting principle -- (.22) -- --------- --------- --------- Net income per share $ 1.49 $ 1.05 $ .90 ========= ========= =========
================================================================================ The Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of this statement. 25 27 CONSOLIDATED STATEMENT OF CASH FLOWS
($ In thousands) Year Ended June 30, ------------------- 2000 1999 1998 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 29,932 $ 20,943 $ 18,324 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 10,671 9,285 11,056 Gain from involuntary conversion (1,292) -- -- Cumulative effect of accounting change -- 4,340 -- Deferred income taxes 2,325 2,283 3,010 Changes in assets and liabilities: Trade receivables 1,154 (15,420) (13,272) Inventories (15,195) 3,375 3,384 Prepaid expenses, insurance receivable and other 3,022 (6,552) 1,783 Accounts payable 17,967 2,421 (1,320) Accrued liabilities (3,564) 2,716 242 -------- -------- -------- Net cash provided by operating activities 45,020 23,391 23,207 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (70,091) (30,048) (14,288) Insurance proceeds from involuntary conversion 2,310 5,687 -- Acquisition of business, net of cash -- (5,588) -- Other, net 256 152 1,674 -------- -------- -------- Net cash used for investing activities (67,525) (29,797) (12,614) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Long-term debt borrowings (repayments) 28,300 15,000 (4,600) Dividends paid on common stock (3,923) (3,705) (3,175) Treasury stock transactions and exercises of stock options, net (1,356) (5,943) (1,179) -------- -------- -------- Net cash provided by (used for) financing activities 23,021 5,352 (8,954) -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 516 (1,054) 1,639 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,186 5,240 3,601 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,702 $ 4,186 $ 5,240 ======== ======== ========
================================================================================ The Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of this statement. 26 28 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
($ In thousands, except per share data) Total Common Paid-in Retained Treasury Shareholders' Stock Capital Earnings Stock Equity ------- ------- -------- -------- ------------- BALANCE, June 30, 1997 $ 19,832 $ 60,332 $ 32,245 $ (423) $ 111,986 Net income -- -- 18,324 -- 18,324 Treasury stock purchases -- -- -- (3,195) (3,195) Exercises of stock options, net 156 868 -- 992 2,016 Dividends, $.16 per share -- -- (3,175) -- (3,175) - ---------------------------------------------------------------------------------------------- BALANCE, June 30, 1998 19,988 61,200 47,394 (2,626) 125,956 Net income -- -- 20,943 -- 20,943 Treasury stock purchases -- -- -- (6,305) (6,305) Exercises of stock options, net -- (1,614) -- 1,976 362 Dividends, $.19 per share -- -- (3,705) -- (3,705) - ---------------------------------------------------------------------------------------------- BALANCE, June 30, 1999 19,988 59,586 64,632 (6,955) 137,251 Net income -- -- 29,932 -- 29,932 Treasury stock purchases -- -- -- (2,449) (2,449) Exercises of stock options, net -- (1,106) -- 2,199 1,093 Dividends, $.20 per share -- -- (3,923) -- (3,923) - ---------------------------------------------------------------------------------------------- BALANCE, June 30, 2000 $ 19,988 $ 58,480 $ 90,641 $ (7,205) $ 161,904 ========= ========= ========= ========= =========
================================================================================ The Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of this statement. 27 29 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Elcor Corporation (the Registrant), through subsidiaries, is engaged in the following lines of business: Roofing Products, Electronics Manufacturing Services, and Industrial Products. The Roofing Products segment, which accounts for 87% of consolidated sales, manufactures and sells premium laminated fiberglass asphalt residential shingles and accessory roofing products, together with nonwoven mats used in manufacturing asphalt roofing products and various industrial applications. The Electronics Manufacturing Services segment, which accounts for 10% of consolidated sales, is engaged in the shielding of plastic components, conductive dispense gaskets, vacuum metalization and other value added services for the telecommunications, computer, and electronic equipment industries. The Industrial Products companies, which account for 3% of consolidated sales, are engaged in the plating of proprietary finishes for large diesel engine cylinder liners and pistons, and engineering consulting services and licensing of patented technologies for the cryogenic processing of natural gas and refinery gas and sulfur recovery processes for the petroleum industry. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Registrant and all subsidiaries after elimination of significant intercompany balances and transactions. Certain reclassifications in the financial statements and footnotes were made to prior year amounts to conform to the current year presentation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONCENTRATION OF CREDIT RISK The majority of the Registrant's sales are in the Roofing Products segment and its primary customers are building materials distributors. For the past several years, the building materials distribution industry has consolidated at a rapid pace with many smaller independent distributors being acquired by emerging larger national building products distributors. The Registrant performs ongoing credit evaluations and maintains reserves for potential credit losses. One customer accounted for 17%, 18% and 16% of consolidated sales in fiscal years 2000, 1999 and 1998, respectively. REVENUE RECOGNITION Revenue is recognized at the time products are shipped to the customer or at the time services are rendered. 28 30 INVENTORIES Inventories are stated at the lower of cost (including direct materials, labor, and applicable overhead) or market, using the first-in, first-out (FIFO) method. Inventories were comprised of:
(In thousands) June 30, ----------------- 2000 1999 ------- ------- Raw Materials $11,457 $10,213 Work-In-Process 259 180 Finished Goods 29,249 15,377 ------- ------- $40,965 $25,770 ======= =======
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Major renewals and improvements are capitalized, while maintenance and repairs are expensed when incurred. Depreciation is computed over the estimated useful lives of depreciable assets using the straight-line method. Useful lives for property and equipment are as follows: Buildings and improvements 10 - 40 years Machinery and equipment 5 - 20 years Computer equipment 3 - 6 years Office furniture and equipment 5 - 12 years
The cost and accumulated depreciation for property, plant and equipment sold, retired, or otherwise disposed of are relieved from the accounts, and resulting gains or losses are reflected in income. Interest is capitalized in connection with the construction of major projects. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset's estimated useful life. In 2000, 1999 and 1998, $2,708,000, $595,000 and $160,000 of interest cost was capitalized, respectively. OTHER ASSETS Included in other assets in the Consolidated Balance Sheet is the excess of cost over the fair value of net assets (or goodwill) of an acquired company. Goodwill totaling $926,000 is amortized on a straight-line basis over 20 years. 29 31 LONG-LIVED ASSETS The Registrant assesses long-lived assets for impairment under Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The carrying amount of long-lived assets, including goodwill, is reviewed if facts and circumstances suggest that it may be impaired. If this review indicates that long-lived assets will not be recoverable, as determined based on the estimated undiscounted cash flows of the long-lived assets over the remaining amortization period, the carrying amount of the long-lived assets is reduced by the estimated shortfall of cash flows. COMPREHENSIVE INCOME SFAS No. 130, "Reporting Comprehensive Income," requires disclosure of all components of comprehensive income on an annual and interim basis. Comprehensive income is the same as reported net income for all periods presented. INCOME TAXES Deferred income taxes are provided to reflect temporary differences between the financial reporting basis and the tax basis of the Registrant's assets and liabilities using presently enacted tax rates. SUPPLEMENTAL CASH FLOWS The Registrant considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Supplemental cash flow amounts were as follows:
(In thousands) June 30, --------------------------- 2000 1999 1998 ------- ------- ------- Interest paid $ 3,476 $ 2,270 $ 2,803 Income taxes paid $18,027 $ 9,344 $ 4,780
ACCOUNTING CHANGE In April 1998, the Accounting Standards Executive Committee (AcSec) of the American Institute of Certified Public Accountants issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities," requiring, among other things, companies to expense on a current basis previously capitalized start-up costs. The Registrant adopted this Statement of Position in fiscal 1999, which resulted in a $4,340,000 charge, net of tax, and is reported as a cumulative effect of change in accounting principle on the Consolidated Statement of Operations. 30 32 NEW ACCOUNTING STANDARDS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." At June 30, 2000, the Registrant had entered into no significant derivative instruments or hedging activities, although the Registrant regularly reviews the potential benefits of interest rate swaps and other potential hedging arrangements and may enter into derivative or hedging instruments from time to time in the future. The Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition," in December 1999. The Registrant is required to adopt this new accounting guidance no later than the fourth quarter of fiscal 2001. The Registrant is evaluating the conceptual guidance provided by SAB No. 101, but does not believe adoption of the guidance provided in SAB No. 101 will have a material impact on future operating results. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS EARNINGS PER SHARE Basic earnings per share were computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. The reconciliation of basic earnings per share to diluted earnings per share is shown in the following table:
(In thousands, except per share data) 2000 1999 1998 ------- ------- ------- Net income $29,932 $20,943 $18,324 ======= ======= ======= Denominator for basic earnings per share-weighted average shares outstanding 19,577 19,546 19,867 Effect of dilutive securities: Employee stock options 509 418 402 ------- ------- ------- Denominator for dilutive earnings per share - adjusted weighted average shares and assumed issuance of shares purchased under the incentive stock option plan using the treasury stock method 20,086 19,964 20,269 ======= ======= ======= Basic earnings per share $ 1.53 $ 1.07 $ .92 ======= ======= ======= Diluted earnings per share $ 1.49 $ 1.05 $ .90 ======= ======= =======
LONG-TERM DEBT The Registrant maintains an unsecured revolving credit facility (Facility) of $125,000,000 of primary credit, including up to a maximum of $5,000,000 in letters of credit, through December 15, 2004. At June 30, 2000, letters of credit totaling $2,682,000 were outstanding. 31 33 Borrowings under the Facility bear interest at (1) the higher of the federal funds rate plus .5%, or the lender's prime rate, or (2) at the Registrant's option, LIBOR, in each case plus specified basis points based on the ratio of the Registrant's total indebtedness to total capital. The Facility also provides for a commitment fee on the average unused portion of the line and is also based on the ratio of the Registrant's total indebtedness to total capital. Based on financial ratios at June 30, 2000, the LIBOR borrowing rate was LIBOR plus .5% and the commitment fee was .175% of the average unused portion of the line. The average interest rate paid on indebtedness in fiscal 2000 was 6.5%. The Facility, among other things, limits the sale or pledging of assets of subsidiaries involved in manufacturing asphalt roofing products, and requires maintenance of specified current ratios, capitalization ratios and cash flow levels. Dividend payments and stock repurchases are limited to certain specified levels. At June 30, 2000, total cumulative dividend payments and stock repurchased since July 1, 1993 were subject to a $50,571,000 limitation. Actual expenditures for these items as of June 30, 2000 have been $24,132,000. SHAREHOLDERS' EQUITY Authorized common stock, par value $1.00, is 100,000,000 shares, of which 19,988,074 shares were issued at June 30, 2000. The Board of Directors is authorized to issue up to 1,000,000 shares of preferred stock, without par value, in one or more series and to determine the rights, preferences, and restrictions applicable to each series. No preferred stock has been issued. SHAREHOLDER RIGHTS PLAN On May 26, 1998, the Registrant's Board of Directors adopted a new Shareholder Rights Plan which took effect when the existing rights plan expired on July 8, 1998. Under the new plan, rights were constructively distributed as a dividend at the rate of one right for each share of common stock of the Registrant held by the shareholders of record as of the close of business on July 8, 1998. Until the occurrence of certain events, the rights are represented by and trade in tandem with common stock. Each right will separate and entitle shareholders to buy stock upon an occurrence of certain takeover or stock accumulation events. Should any person or group (Related Person) acquire beneficial ownership of 15% or more of the Registrant's common stock other than certain bona fide institutional investors to whom a 20% threshold applies, all rights not held by the Related Person become rights to purchase one one-hundredth of a share of preferred stock for $110 or $110 of Elcor common stock at a 50% discount. If after such an event the Registrant merges, consolidates or engages in a similar transaction in which it does not survive, each holder has a "flip over" right to buy discounted stock in a surviving entity. Under certain circumstances, the rights are redeemable at a price of $0.01 per right. Further, upon defined stock accumulation events, the Board of Directors has the option to exchange one share of common stock per right. The rights will expire by their terms on July 8, 2008. 32 34 EMPLOYEE BENEFIT PLANS The Registrant's Incentive Stock Option Plan provides for the granting of incentive and non-qualified stock options to directors, officers and key employees of the Registrant for purchase of the Registrant's common stock. Information relating to options is as follows:
Weighted Number Option Price Average Option of Shares Range per Share Price per Share --------- --------------- --------------- Outstanding at June 30, 1997 879,266 $ 3.11 - $10.73 $ 7.67 Granted 224,767 $13.33 - $18.42 $14.91 Cancelled (3,957) $ 5.39 - $10.73 $ 6.51 Exercised (224,784) $ 3.11 - $13.33 $ 6.92 --------- Outstanding at June 30, 1998 875,292 $ 3.11 - $18.42 $ 9.72 Granted 194,295 $14.67 - $23.17 $17.52 Cancelled (11,910) $ 3.11 - $18.42 $12.07 Exercised (125,602) $ 3.11 - $14.67 $ 5.74 --------- Outstanding at June 30, 1999 932,075 $ 3.89 - $23.17 $11.85 Granted 454,290 $23.50 - $34.25 $27.85 Cancelled (9,437) $ 8.44 - $28.04 $20.41 Exercised (135,480) $ 3.89 - $23.17 $ 8.07 --------- Outstanding at June 30, 2000 1,241,448 $ 5.39 - $34.25 $18.05 =========
The following table summarizes information about options outstanding at June 30, 2000:
Options Outstanding Options Exercisable ------------------------------------------------------------ ----------------------------------- Weighted-Average Number --------------------------------------- Number Weighted Range of Outstanding at Remaining Exercise Exercisable Average Exercise Prices 6/30/00 Contractual Life Price at 6/30/00 Exercise Price --------------- -------------- --------------------- -------- ---------- -------------- $ 5.39 - $9.99 351,970 4.76 yrs. $ 8.68 195,469 $ 8.49 $10.00 - $14.99 224,531 6.65 yrs. $13.21 59,768 $11.01 $15.00 - $23.49 214,448 7.83 yrs. $17.93 61,502 $17.33 $23.50 - $34.25 450,499 9.11 yrs. $27.85 22,500 $23.50
At June 30, 2000, 1999 and 1998, 339,239, 354,570, and 314,720 shares were exercisable, respectively. A total of 1,462,150, 1,907,003, and 375,096 shares were reserved for future grants at June 30, 2000, 1999 and 1998, respectively. Beginning in fiscal 1997, the Registrant adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized with respect to the Registrant's stock option plan. Pro forma information regarding net income and income per share set forth below has been determined as if the Registrant had accounted for its stock options under the fair value methodology prescribed by 33 35 SFAS No. 123. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for fiscal 2000, 1999 and 1998; dividend yields of 0.7%, 1.1% and 1.1%; risk-free interest rates of 6.3%, 4.6% and 6.2%; expected market price volatility of .421, .416 and .413; and expected lives of options of 9.0, 8.9 and 8.5 years. Based on this model, the weighted average fair value of stock options granted in fiscal 2000, 1999 and 1998 was $15.67, $8.72 and $7.75, respectively.
(In thousands, except per share data) 2000 1999 1998 ---------------------- ---------- ---------- -------- Net income, as reported $29,932 $20,943 $18,324 Net income, pro forma $27,280 $20,292 $17,651 Income per share - basic, as reported $1.53 $1.07 $.92 Income per share - basic, pro forma $1.39 $1.04 $.89 Income per share - diluted, as reported $1.49 $1.05 $.90 Income per share - diluted, pro forma $1.36 $1.02 $.87
The pro forma amounts presented above may not be representative of the effects on reported net income for future years. The Registrant's Employee Stock Ownership Plan (ESOP) became effective January 1, 1981. Under the plan, the Registrant contributes a percentage of each participant's annual compensation into a trust, either as treasury stock contributions or cash, which is then used to purchase Elcor common stock. Employees vest 20% after one year of employment and 20% per year thereafter, with the stock distributed at retirement, death, disability, or as authorized by the Plan Administrative Committee. Effective January 1, 1990, the Registrant established an Employee Savings Plan under Internal Revenue Code section 401(k). Under the 401(k) Plan, the Registrant contributes a percentage of each participant's annual compensation into a Plan to be invested among various defined alternatives at the participants' direction. Vesting of Registrant contributions is in accordance with the same schedule as that of the ESOP. All full-time employees, except those covered by plans established through collective bargaining, are eligible for participation in the above plans after meeting minimum service requirements. The Board of Directors has authorized total contributions of 5.0%, including forfeitures, of each participant's annual compensation, as defined, split equally between the ESOP and 401(k) Plans. In addition, on January 1, 1998, the Registrant began contributing an additional $.50 for every $1.00 of employee contributions into the 401(k) Plan limited to a maximum matching of 2% of an employee's compensation. Total contributions charged to expense for these plans were $2,466,000, $2,123,000 and $1,722,000, in 2000, 1999 and 1998, respectively. The Registrant has a Stock/Loan Plan which allows certain key employees to borrow an amount, based on a percentage of their salaries and the performance of their operating units, for the purpose of purchasing the Registrant's common stock. Under the Stock/Loan Plan, a ratable portion of the loans, which are unsecured, and any accrued interest are forgiven and recognized as compensation expense over five years of continuing service with the Registrant. If employment is terminated for any reason except death, disability or retirement, the balance of the loan becomes due and payable. Loans outstanding at June 30, 2000 and 1999 totaling $1,830,700 and $1,436,700, respectively, are included in other assets. 34 36 COMMITMENTS AND CONTINGENCIES The Registrant and its subsidiaries lease certain office space, facilities, and equipment under operating leases, expiring on various dates through 2005. Total rental expense was $1,787,000 in 2000, $1,618,000 in 1999 and $1,505,000 in 1998. At June 30, 2000, future minimum rental commitments under noncancellable operating leases, payable over the remaining lives of the leases, are:
(In thousands) Minimum Rental Fiscal Year Commitments ----------- -------------- 2001 $1,714 2002 1,187 2003 1,005 2004 664 2005 12 Thereafter --- ------ Total $4,582 ======
The Registrant's subsidiaries provide certain warranties for their products which are generally limited to being free from defects in materials or manufacturing workmanship affecting performance or meeting specified manufacturing and material specifications. During 2000, 1999 and 1998, the Registrant recorded to expense $1,773,000, $2,334,000 and $1,681,000, respectively, in warranty claim settlements and reserves. In February 2000, Wedgewood Knolls Condominium Association filed a purported class action in the United States District Court in Newark, New Jersey, which as amended names Elk Corporation of Texas and Elk Corporation of Alabama. The purported nationwide class would include purchasers or current owners of buildings with certain Elk asphalt shingles installed between January 1, 1980 and present. The suit alleges, among other things, that the shingles were uniformly defective. It seeks reformation of the limited warranty applicable to the shingles, and unspecified damages of breach of implied and written warranties and alleged unfair or deceptive trade practices on behalf of the plaintiff and the purported class. In June 2000, an individual homeowner filed a purported class action, Lastih v. Elk Corporation of Alabama, in the Judicial District of Hartford, Connecticut. In August 2000, Elk removed that case to the United States District Court in New Haven, Connecticut. The Lastih suit involves similar class allegations and claims to those asserted in the Wedgewood Knolls suit described above. Elk has denied the claims asserted in the Wedgewood Knolls and Lastih actions, and is vigorously defending these suits. Elk has denied that class certification is appropriate and intends to contest any attempts to certify such a class. The Registrant cannot predict whether these actions, which are both in early stages, will have a material adverse effect on its results of operations, financial position or liquidity. 35 37 The Registrant and its subsidiaries are involved in other legal actions and claims, including claims arising in the ordinary course of business. Based on advice from legal counsel, management believes such litigation and claims will be resolved without material adverse effect on the consolidated financial statements. The Registrant is self-insured for its products and completed operations liability exposure because the cost of insurance for such risks is believed to be excessive for the coverage to be provided. Reserves for estimated potential losses of this type have been established. The Registrant's operations are subject to extensive federal, state and local laws and regulations relating to environmental matters. Although the Registrant does not believe it will be required to expend amounts which will have a material adverse effect on the Registrant's consolidated financial position or results of operations by reason of environmental laws and regulations, such laws and regulations are frequently changed and could result in significantly increased cost of compliance. Further, certain of the Registrant's industrial products and electronics manufacturing services operations utilize hazardous materials in their production processes. As a result, the Registrant incurs costs for remediation activities at its facilities and off-site from time to time. The Registrant establishes and maintains reserves for such known remediation activities. INVOLUNTARY CONVERSION On September 15, 1998, the Registrant experienced an explosion at its nonwoven fiberglass roofing mat plant in Ennis, Texas. The explosion significantly damaged a drying oven and caused less extensive damage to the remainder of the mat manufacturing line. There was no damage to a separate mat line that runs in parallel to the damaged line, nor was there any damage to the Registrant's Ennis, Texas shingle manufacturing plant. There were no injuries from the explosion. The damaged line was restored to partial operation in December 1998. By March 1999, the damaged section had been replaced. By June 1999, the line had resumed operating at line speeds equivalent to line speeds at the time of the explosion. The Registrant submitted claims totaling $17,492,000 for property damage and business interruption. In February 2000 the Registrant reached final settlement with its insurance company. In total, the Registrant received insurance proceeds of $17,017,000 on the claim. Assets with net book value of $3,990,000 were destroyed in the explosion and were insured for replacement value. Overall, the Registrant received replacement value payments on the property claim in excess of the net book value of destroyed assets in the amount of $1,292,000. This amount was recorded as a gain from involuntary conversion. ACQUISITION AND CONSOLIDATION On January 11, 1999, a newly formed wholly owned subsidiary of the Registrant purchased all of the outstanding shares of YDK America, Inc., a leading supplier to the computer industry of electronic plastic enclosures and components having electroless conductive coatings. The total purchase price was $5,588,000, net of cash acquired, which was financed through borrowings under the Registrant's revolving credit agreement. The purchase price exceeded the 36 38 fair value of net tangible assets acquired by $926,000, which was recorded as goodwill. The acquisition was accounted for using the purchase method of accounting, and the operating results have been included in the Registrant's consolidated financial statements since the date of acquisition. In the fourth quarter of fiscal 1999, management approved a consolidation plan for Chromium Corporation's reciprocating engine components business. In fiscal 2000, all operations for this business activity at the Lufkin, Texas facility were transferred to the Cleveland, Ohio plant. Costs to relocate equipment and other consolidation items with cost of $3,400,000 were incurred and recorded to expense in fiscal 2000. In fiscal 1999 the Registrant recorded a pretax charge of $375,000 in severance benefits for 64 employees who were not transferred. The Lufkin, Texas facility will be used exclusively by Cybershield of Texas for electronics manufacturing services operations. ACCRUED LIABILITIES Accrued liabilities consist of the following:
(In thousands) June 30, ----------------- 2000 1999 ------- ------ Product warranty reserves $ 1,748 $ 1,976 Self-insurance reserves 1,414 1,208 Compensation and employee benefits 3,422 4,666 All other 5,669 7,967 ------- ------- $12,253 $15,817 ======= =======
37 39 INCOME TAXES The Registrant's effective tax rate was 37.9% in 2000, 36.0% in 1999 and 35.6% in 1998. The difference between the federal statutory tax rate and the effective tax rate is reconciled as follows:
2000 1999 1998 ------ ------ ------ Federal statutory tax rate 35.0% 35.0% 35.0% Change in tax rate resulting from: State income taxes, net of federal tax effect 2.6% .7% .9% Miscellaneous items .3% .3% (.3)% ---- ---- ---- 37.9% 36.0% 35.6% ==== ==== ====
Components of the income tax provisions consist of the following:
(In thousands) 2000 1999 1998 ------- ------- ------- Federal: Current $14,768 $ 9,169 $ 6,722 Deferred, net 1,814 4,625 3,010 State 1,675 453 402 ------- ------- ------- $18,257 $14,247 $10,134 ======= ======= =======
The significant components of the Registrant's deferred tax assets and liabilities are summarized below:
(In thousands) 2000 1999 1998 -------- -------- -------- Deferred tax assets: Accrued liabilities, difference in expense recognition $ 2,103 $ 2,304 $ 1,786 Receivables, bad debt reserve 337 338 203 Inventories, difference in capitalization 382 44 239 -------- -------- -------- 2,822 2,686 2,228 -------- -------- -------- Deferred tax liabilities: Fixed assets, primarily depreciation method differences and deferred preoperating costs (21,083) (18,047) (15,881) Other current assets, insurance claim -- (575) -- -------- -------- -------- (21,083) (18,622) (15,881) -------- -------- -------- Net deferred tax liability $(18,261) $(15,936) $(13,653) ======== ======== ========
38 40 FINANCIAL INFORMATION BY COMPANY SEGMENTS
(In thousands) 2000 1999 1998 --------- --------- --------- SALES Roofing products $ 305,396 $ 278,918 $ 229,475 Electronics manufacturing services 33,420 22,367 13,544 Industrial products 11,300 16,449 25,042 Corporate and eliminations 159 140 117 --------- --------- --------- $ 350,275 $ 317,874 $ 268,178 ========= ========= ========= OPERATING PROFIT (LOSS) Roofing products $ 53,024 $ 45,061 $ 24,885 Electronics manufacturing services 4,904 3,384 3,650 Industrial products(1) (4,653) 182 7,130 Corporate and other (5,216) (7,122) (5,076) --------- --------- --------- 48,059 41,505 30,589 Other income 1,485 84 446 Interest expense (1,355) (2,059) (2,577) --------- --------- --------- Income before income taxes $ 48,189 $ 39,530 $ 28,458 ========= ========= ========= IDENTIFIABLE ASSETS Roofing products $ 265,944 $ 209,742 $ 187,770 Electronics manufacturing services 25,707 20,709 7,372 Industrial products 8,076 7,640 7,559 Corporate 22,847 14,091 14,343 --------- --------- --------- $ 322,574 $ 252,182 $ 217,044 ========= ========= ========= DEPRECIATION AND AMORTIZATION Roofing products $ 8,537 $ 7,899 $ 10,025 Electronics manufacturing services 1,671 728 335 Industrial products 347 481 498 Corporate 116 177 198 --------- --------- --------- $ 10,671 $ 9,285 $ 11,056 ========= ========= ========= CAPITAL EXPENDITURES Roofing products $ 58,658 $ 19,229 $ 6,745 Electronics manufacturing services 6,281 4,934 3,866 Industrial products 1,796 366 379 Corporate 3,356 5,519 3,298 --------- --------- --------- $ 70,091 $ 30,048 $ 14,288 ========= ========= =========
(1) In fiscal 1998, operating profit from the Registrant's technology licensing and consulting services business exceeded 10% of consolidated operating profit. This business has not historically met the 10% reporting test nor is it typically expected to in the future. No separate segment is reflected in fiscal 1998 for this business unit. 39 41 INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULE To the Shareholders and Board of Directors of Elcor Corporation: We have audited in accordance with auditing standards generally accepted in the United States, the accompanying consolidated financial statements of Elcor Corporation and have issued our report thereon dated August 14, 2000. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The Supplemental Schedule II is the responsibility of the company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth herein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP ----------------------- Arthur Andersen LLP Dallas, Texas August 14, 2000 40 42 SCHEDULE II (In thousands) ELCOR CORPORATION AND SUBSIDIARIES SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JUNE 30, 2000, 1999, AND 1998
Column A Column B Column C Column D Column E -------- -------- ------------------------ ---------------- ----------- Additions Deductions ------------------------ ---------------- Balance at Charged to For Purposes For Balance at Beginning Costs and Which Reserves End Description of Period Expenses Other Were Created of Period ----------- ----------- ---------- ---------- ---------------- ------------ YEAR ENDED JUNE 30, 2000 CONSOLIDATED: Allowance for doubtful accounts $ 967 $ -- $ -- $ (4) $ 963 =========== =========== =========== =========== =========== Allowance for inventory obsolescence $ 297 $ -- $ -- $ (171) $ 126 =========== =========== =========== =========== =========== YEAR ENDED JUNE 30, 1999 CONSOLIDATED: Allowance for doubtful accounts $ 580 $ 525 $ 14 $ (152) $ 967 =========== =========== =========== =========== =========== Allowance for inventory obsolescence $ 125 $ 262 $ -- $ (90) $ 297 =========== =========== =========== =========== =========== YEAR ENDED JUNE 30, 1998 CONSOLIDATED: Allowance for doubtful accounts $ 545 $ 210 $ -- $ (175) $ 580 =========== =========== =========== =========== =========== Allowance for inventory obsolescence $ 201 $ 25 $ -- $ (101) $ 125 =========== =========== =========== =========== ===========
41 43 Item 9. Disagreements on Accounting and Financial Disclosure The Registrant has retained its independent public accountants for over 30 years. There have been no disagreements with the independent public accountants on accounting or financial disclosure matters. 42 44 PART III Item 10. Directors and Executive Officers of the Registrant Information concerning the Directors of the Registrant required by this item is incorporated herein by reference to the material under the caption "Election of Directors" on pages 5, 6 and 7 of the Registrant's Proxy Statement dated September 20, 2000. Information concerning the Executive Officers of the Registrant is contained in Item 1 of this report under the caption "Executive Officers of the Registrant" on pages 10 and 11 of this Annual Report on Form 10-K. Item 11. Executive Compensation The information required by this item is incorporated herein by reference to the information under the caption "Executive Compensation" on pages 7 through 16 of the Registrant's Proxy Statement dated September 20, 2000. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this item is incorporated herein by reference to the information under the caption "Stock Ownership" on pages 3 and 4 of the Registrant's Proxy Statement dated September 20, 2000. The referenced information was provided as of September 5, 2000. Registrant is aware of no material change since such date in the beneficial ownership of any officer, director or beneficial owner of five percent of any class of its voting stock. Item 13. Certain Relationships and Related Transactions There are no reportable transactions, business relationships or indebtedness between the Registrant and any covered party. 43 45 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports of Form 8-K (a) Financial Statements The following financial statements of Elcor Corporation are set forth in Item 8 of this Annual Report on Form 10-K: Financial Statements: Independent Auditors' Report Consolidated Balance Sheet at June 30, 2000, and 1999 Consolidated Statement of Operations for the years ended June 30, 2000, 1999 and 1998 Consolidated Statement of Cash Flows for the years ended June 30, 2000, 1999, and 1998 Consolidated Statement of Shareholders' Equity for the years ended June 30, 2000, 1999, and 1998 Notes to Consolidated Financial Statements Financial Statement Schedule: Independent Auditors' Report Schedule II - Consolidated Valuation and Qualifying Accounts and Reserves All other schedules are omitted because they are not required, are not applicable, or the information is included in the financial statements or notes thereto. (b) Reports on Form 8-K The Registrant filed Forms 8-K on April 20, 2000 and May 24, 2000 relating to press releases containing "forward-looking statements" about its prospects for the future. (c) Exhibits **3.1 The Restated Certificate of Incorporation of the Registrant, filed as Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1994 (File No. 1-5341). **3.11 Certificate of Amendment to Certificate of Incorporation dated December 2, 1998 (file No. 1-531).
44 46 **3.2 Amended and Restated Bylaws of the Registrant, filed as Exhibit 3 to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1981 and as Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1988 originally filed with the Securities and Exchange Commission on February 11, 1989 (File No. 1-5341). **4.1 Form of Rights Agreement dated as of July 7, 1998, between the company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, which includes as Exhibits A and B thereto the Forms of Certificate of Designation, Preferences and Rights of Series A Participating Preferred Stock, Rights Certificate, filed as Exhibit 4.1 to the company's current Report on Form 8-K dated May 26, 1998 (File No. 1-5341). **4.6 Loan Agreement dated September 19, 1993 among Elcor Corporation, Certain Lenders, NationsBank of Texas, N.A., as Issuer, and NationsBank of Texas, N.A., as Administrative Lender, filed as Exhibit 4.6 in the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 (File No. 1-5341). **4.7 First Amendment dated October 31, 1994 to Loan Agreement dated September 29, 1993 among Elcor Corporation, NationsBank of Texas, N.A., as Issuer, and NationsBank of Texas, N.A. as Administrative Lender, filed as Exhibit 4.7 in the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994 (File No. 1-5341). **4.8 Second Amendment dated December 15, 1995 to Loan Agreement dated September 29, 1993 among Elcor Corporation, NationsBank of Texas, N.A., As Issuer, Administrative Lender, and Lender; and Bank of America - Texas, N.A. and Comerica Bank - Texas as Lenders, filed as Exhibit 4.8 in the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995 (File No. 1-5341). **4.9 Third Amendment dated October 31, 1996 to Loan Agreement dated September 29, 1993 among Elcor Corporation, NationsBank of Texas, N.A., As Issuer, Administrative Lender, and Lender; and Bank of America - Texas, N.A. and Comerica Bank - Texas as Lenders, filed as Exhibit 4.9 in the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (File No. 1-5341). **4.10 Fourth Amendment dated December 15, 1997 to Loan Agreement dated September 29, 1993 among Elcor Corporation, NationsBank of Texas, N.A., as Issuer, Administrative Lender, and Lender; and Bank of America - Texas, N.A., Comerica Bank - Texas, and the Bank of Tokyo - Mitsubishi, Ltd. as Lenders, filed as Exhibit 4.10 in the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997 (File No. 1-5341).
45 47 **4.11 Fifth Amendment dated January 5, 2000 to Loan Agreement dated September 29, 1993 among Elcor Corporation, Bank of America, N.A., as Issuer, Administrative Lender, and Lender; and Comerica Bank - Texas, Bank of Tokyo - Mitsubishi, Ltd., The Frost National Bank, and Bank One, Texas, N.A., as Lenders, filed as Exhibit 4.11 in the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1999 (File No. 1 - 5341). **10.1 Form of Executive Agreement filed as Exhibit 10.1 in the Registrant's Annual Report on Form 10-K for the year ended June 30, 1998 (File No. 1-5341). **10.2 Amended and Restated Elcor Corporation Employee Stock/Loan Plan filed as Exhibit 10.2 in the Registrant's Annual Report on Form 10-K for the year ended June 30, 1998 (File No. 1-5341). **10.3 1998 Amended and Restated Elcor Corporation Incentive Stock Option Plan filed as Appendix B in the Registrant's Proxy Statement dated September 18, 1998 (File No. 1-5341). *10.4 Deferred Compensation Plan. *21 Subsidiaries of the Registrant. *23 Consent of Independent Public Accountants. *27 Financial Data Schedule (EDGAR submission only). - ---------------------- * Filed herewith. ** Incorporated by reference.
46 48 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ELCOR CORPORATION Date September 26, 2000 By /s/ Richard J. Rosebery ----------------------------- Richard J. Rosebery Vice Chairman, Chief Financial and Administrative Officer By /s/ Leonard R. Harral ----------------------------- Leonard R. Harral Vice President and Chief Accounting Officer 49 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below in multiple counterparts by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- /s/ Harold K. Work Chairman of the Board, September 26, 2000 - ----------------------------- President, Chief Harold K. Work Executive Officer /s/ Richard J. Rosebery Vice Chairman, Chief September 26, 2000 - ----------------------------- Financial and Administrative Richard J. Rosebery Officer /s/ Leonard R. Harral Vice President and September 26, 2000 - ----------------------------- Chief Accounting Officer Leonard R. Harral /s/ James E. Hall Director September 26, 2000 - ---------------------------- James E. Hall /s/ Thomas D. Karol Director September 26, 2000 - ---------------------------- Thomas D. Karol /s/ Dale V. Kesler Director September 26, 2000 - ---------------------------- Dale V. Kesler /s/ David W. Quinn Director September 26, 2000 - ---------------------------- David W. Quinn
50 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- **3.1 The Restated Certificate of Incorporation of the Registrant, filed as Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1994 (File No. 1-5341). **3.11 Certificate of Amendment to Certificate of Incorporation dated December 2, 1998 (file No. 1-531). **3.2 Amended and Restated Bylaws of the Registrant, filed as Exhibit 3 to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1981 and as Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1988 originally filed with the Securities and Exchange Commission on February 11, 1989 (File No. 1-5341). **4.1 Form of Rights Agreement dated as of July 7, 1998, between the company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, which includes as Exhibits A and B thereto the Forms of Certificate of Designation, Preferences and Rights of Series A Participating Preferred Stock, Rights Certificate, filed as Exhibit 4.1 to the company's current Report on Form 8-K dated May 26, 1998 (File No. 1-5341). **4.6 Loan Agreement dated September 19, 1993 among Elcor Corporation, Certain Lenders, NationsBank of Texas, N.A., as Issuer, and NationsBank of Texas, N.A., as Administrative Lender, filed as Exhibit 4.6 in the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 (File No. 1-5341). **4.7 First Amendment dated October 31, 1994 to Loan Agreement dated September 29, 1993 among Elcor Corporation, NationsBank of Texas, N.A., as Issuer, and NationsBank of Texas, N.A. as Administrative Lender, filed as Exhibit 4.7 in the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994 (File No. 1-5341). **4.8 Second Amendment dated December 15, 1995 to Loan Agreement dated September 29, 1993 among Elcor Corporation, NationsBank of Texas, N.A., As Issuer, Administrative Lender, and Lender; and Bank of America - Texas, N.A. and Comerica Bank - Texas as Lenders, filed as Exhibit 4.8 in the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995 (File No. 1-5341). **4.9 Third Amendment dated October 31, 1996 to Loan Agreement dated September 29, 1993 among Elcor Corporation, NationsBank of Texas, N.A., As Issuer, Administrative Lender, and Lender; and Bank of America - Texas, N.A. and Comerica Bank - Texas as Lenders, filed as Exhibit 4.9 in the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (File No. 1-5341). **4.10 Fourth Amendment dated December 15, 1997 to Loan Agreement dated September 29, 1993 among Elcor Corporation, NationsBank of Texas, N.A., as Issuer, Administrative Lender, and Lender; and Bank of America - Texas, N.A., Comerica Bank - Texas, and the Bank of Tokyo - Mitsubishi, Ltd. as Lenders, filed as Exhibit 4.10 in the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997 (File No. 1-5341).
51 **4.11 Fifth Amendment dated January 5, 2000 to Loan Agreement dated September 29, 1993 among Elcor Corporation, Bank of America, N.A., as Issuer, Administrative Lender, and Lender; and Comerica Bank - Texas, Bank of Tokyo - Mitsubishi, Ltd., The Frost National Bank, and Bank One, Texas, N.A., as Lenders, filed as Exhibit 4.11 in the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1999 (File No. 1 - 5341). **10.1 Form of Executive Agreement filed as Exhibit 10.1 in the Registrant's Annual Report on Form 10-K for the year ended June 30, 1998 (File No. 1-5341). **10.2 Amended and Restated Elcor Corporation Employee Stock/Loan Plan filed as Exhibit 10.2 in the Registrant's Annual Report on Form 10-K for the year ended June 30, 1998 (File No. 1-5341). **10.3 1998 Amended and Restated Elcor Corporation Incentive Stock Option Plan filed as Appendix B in the Registrant's Proxy Statement dated September 18, 1998 (File No. 1-5341). *10.4 Deferred Compensation Plan. *21 Subsidiaries of the Registrant. *23 Consent of Independent Public Accountants. *27 Financial Data Schedule (EDGAR submission only).
- ---------- * Filed herewith. ** Incorporated by reference. EX-10.4 2 d80378ex10-4.txt DEFERRED COMPENSATION PLAN 1 EXHIBIT 10.4 ELCOR CORPORATION DEFERRED COMPENSATION PLAN 2 TABLE OF CONTENTS
Page ---- ARTICLE I TITLE AND DEFINITIONS....................................................................................1 1.1 Title ...................................................................................................1 1.2 Definitions..............................................................................................1 ARTICLE II PARTICIPATION............................................................................................4 ARTICLE III DEFERRALS................................................................................................4 3.1 Elections to Defer Base Salary, Bonuses or Commissions...................................................5 3.2 Discretionary Credits by Company.........................................................................5 3.3 Deferral of Excess 401(k) Contributions..................................................................5 3.4 Deemed Investment Elections..............................................................................6 ARTICLE IV DEFERRAL ACCOUNTS........................................................................................6 4.1 Deferral Accounts........................................................................................6 ARTICLE V VESTING..................................................................................................7 ARTICLE VI DISTRIBUTIONS............................................................................................7 6.1 Normal Distributions.....................................................................................7 6.2 Hardship Distributions...................................................................................8 6.3 Accelerated Payments.....................................................................................9 6.4 Inability to Locate Participant..........................................................................9 ARTICLE VII ADMINISTRATION...........................................................................................9 7.1 Committee................................................................................................9 7.2 Committee Action.........................................................................................9 7.3 Powers and Duties of the Committee......................................................................10 7.4 Construction and Interpretation.........................................................................10 7.5 Information.............................................................................................11 7.6 Compensation, Expenses and Indemnity....................................................................11 7.7 Quarterly Statements....................................................................................11 7.8 Disputes ...............................................................................................11 ARTICLE VIII MISCELLANEOUS...........................................................................................12 8.1 Unsecured General Creditor..............................................................................12 8.2 Restriction Against Assignment..........................................................................13 8.3 Withholding.............................................................................................13 8.4 Amendment, Modification, Suspension or Termination......................................................13 8.5 Adoption by Affiliates..................................................................................13 8.6 Governing Law...........................................................................................14 8.7 Receipt of Release......................................................................................14
i 3
Page ---- 8.8 Payments on Behalf of Persons Under Incapacity..........................................................14 8.9 Limitation of Rights and Service Relationship...........................................................14 8.10 Headings ...............................................................................................14
ii 4 ELCOR CORPORATION DEFERRED COMPENSATION PLAN WHEREAS, Elcor Corporation (sometimes referred to herein as the "Company") desires to establish, effective as of January 1, 2001, the Elcor Corporation Deferred Compensation Plan to provide supplemental retirement savings benefits primarily for a select group of management and highly compensated employees of the Elcor Corporation and its affiliates, and also for outside directors of Elcor Corporation, through deferrals of salary, commissions, bonuses and other payment items; NOW, THEREFORE, the terms of the Plan are as follows: ARTICLE I TITLE AND DEFINITIONS 1.1 Title. This Plan shall be known as the Elcor Corporation Deferred Compensation Plan. 1.2 Definitions. Whenever the following words and phrases are used in this Plan, with the first letter capitalized, they shall have the meanings specified below: (a) "Account" or "Accounts" shall mean a Participant's Deferral Account. (b) "Base Salary" shall mean a Participant's annual base salary, excluding bonus, incentive compensation and all other remuneration for services rendered to Company or its subsidiaries and shall be determined without reduction for any salary reduction contributions to a qualified plan with a deferral feature under Section 401(k) of the Code or a plan established pursuant to Section 125 of the Code. (c) "Beneficiary" or "Beneficiaries" shall mean, at the relevant time, the person or persons, including a trustee, personal representative or other fiduciary, last designated by a Participant in accordance with procedures established by the Committee to receive the benefits specified hereunder in the event of the Participant's death. No beneficiary designation shall become effective until it is filed with the Committee. Any designation shall be revocable at any time through a written instrument filed by the Participant with the Committee with or without the consent of the previous Beneficiary. However, no designation of a Beneficiary other than the Participant's spouse shall be valid unless consented to in writing by the Participant's then existing spouse. If there is no such designation or if there is no surviving designated Beneficiary, then the Participant's surviving spouse shall be the Beneficiary. If there is no surviving spouse to receive any benefits payable in accordance with the preceding sentence, the duly appointed and currently acting personal representative of the Participant's estate shall be the Beneficiary. In any case where there is no such personal representative of the Participant's estate duly appointed and 1 5 acting in that capacity within 90 days after the Participant's death (or such extended period as the Committee determines is reasonably necessary to allow such personal representative to be appointed, but not to exceed 180 days after the Participants' death), then Beneficiary shall mean the person or persons who can verify by affidavit or court order to the satisfaction of the Committee that they are legally entitled to receive the benefits specified hereunder. In the event any amount is payable under the Plan to a minor, payment shall not be made to the minor, but instead be paid, unless otherwise required by law, (a) to that person's living parent(s) to act as custodian, (b) if that person's parents are then divorced, and one parent is the sole custodial parent, to such custodial parent, or (c) if no parent of that person is then living, to a custodian selected by the Committee to hold the funds for the minor under the Uniform Transfers or Gifts to Minors Act in effect in the jurisdiction in which the minor resides. If no parent is living and the Committee decides not to select another custodian to hold the funds for the minor, then payment shall be made to the duly appointed and currently acting guardian of the estate for the minor or, if no guardian of the estate for the minor is dully appointed and currently acting within 60 days after the date the amount becomes payable, payment shall be deposited with the court having jurisdiction over the estate of the minor. Payment by the Company pursuant to any unrevoked Beneficiary designation, or to the Participant's estate if no such designation exists, of all benefits owed hereunder shall terminate any and all liability of the Company. (d) "Board of Directors" or "Board" shall mean the board of directors of Elcor Corporation. (e) "Bonuses" shall mean such cash amounts of income in addition to Base Salary and Commissions as Company or its subsidiaries may determine to pay to a Participant, as determined in the sole and absolute discretion of Company, or as determined by a formula established in the discretion of the Company. (f) "Code" shall mean the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder. (g) "Committee" shall mean the committee appointed by the Board to administer the Plan in accordance with Article VII. (h) "Commissions" shall mean a Participant's remuneration earned from Company or its subsidiaries that is designated as such and that is dependent on sales activity and does not constitute Base Salary or Bonuses. (i) "Company" shall mean Elcor Corporation and any successor corporations or entities and any corporation or entity that adopts the Plan pursuant to Section 8.5 hereof. (j) "Company Credits" shall mean Company Credits described in Section 3.2 hereof. (k) "Compensation" shall mean the Base Salary, Commissions, Bonuses, Fees and Excess 401(k) Contributions that the Participant is entitled to receive from the Company. 2 6 (l) "Deferral Account" shall mean the bookkeeping account maintained by the Committee for each participant as described in Article IV hereof. (m) "Deferral Year" shall mean the Plan Year in which an item of Compensation that is deferred hereunder would have been paid absent such deferral. (n) "Distributable Amount" shall mean, as of any particular time, the balance in the Participant's Deferral Account as determined under Article IV, less (i) any credited amounts that are attributable to any non-vested Company Credits and (ii) any net earnings on such non-vested Company Credits. (o) "Earnings Rate" shall mean, for each Fund, an amount equal to the net rate of gain or loss on the assets of such Fund during each month or other relevant period. (p) "Effective Date" shall mean January 1, 2001. (q) "Eligible Employee" shall mean (i) a member of a select group of management or a highly compensated employee (for purposes of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA) of the Company that adopts this Plan, or (ii) a non-employee director of Elcor Corporation, who, in either case is designated by the Committee for participation in this Plan and who has not been removed by the Committee from participation. (r) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. (s) "Excess 401(k) Contributions" shall mean, with respect to a Participant, the sum of the "excess deferrals" (as defined in Section 402(g) of the Code), "excess contributions" (as defined in Section 401(k) of the Code) and "excess aggregate contributions" but subject to vesting (as defined in Section 401(m) of the Code) that are distributable to the Participant under the terms of the 401(k) Plan during a Plan Year. (t) "Fees" shall mean all fees and retainers paid as compensation by the Company to a Participant who is a non-employee director of the Company. (u) "401(k) Plan" shall mean the Amended and Restated Elcor Corporation Employees' 401(k) Savings Plan, as it shall be amended from time to time. (v) "Fund" or "Funds" shall mean one or more of the investment funds selected and communicated by the Committee pursuant to Section 3.4(a). (w) "Hardship Distribution" shall mean a distribution described in Section 6.3 hereof. (x) "Initial Election Period" shall mean, for those who are Eligible Employees on the Effective Date, the 30-day period immediately prior to such date [this assumes adoption of plan more than 30 days before effective date] and, for all other Eligible Employees, the 30-day period following the time he or she is designated by the Committee as an Eligible Employee. 3 7 (y) "Participant" shall mean any Eligible Employee who becomes a Participant in accordance with Article II. (z) "Payment Date" shall mean one of the following dates selected on a deferral form by a Participant with respect to a deferral of an item of Compensation with respect to a Deferral Year: (i) as soon as practicable after termination of Participant's service, but in no event later than six (6) months after such termination; (ii) April 1 of any year selected between and including the third through the fifteenth year following the Deferral Year; or (iii) April 1 of the year the Participant attains, or would have attained, age 62. (aa) "Plan" shall mean the Elcor Corporation Deferred Compensation Plan set forth herein, or as amended from time to time. (bb) "Plan Year" shall mean the 12 consecutive month period beginning on each January 1 and ending on December 31. ARTICLE II PARTICIPATION An Eligible Employee shall become a Participant in the Plan by electing to defer a portion of his or her Compensation in accordance with Section 3.1. An Eligible Employee who completes the requirements of the preceding sentence shall commence participation in this Plan as of the first day of the month in which Compensation is so deferred. Notwithstanding any provision to the contrary, if it is determined or reasonably believed, based on a judicial or administrative determination or an opinion of legal counsel of Elcor Corporation or of the Committee that a Participant is not a member of a select group of management or a highly compensated employee for purposes of ERISA, such individual shall cease to be a Participant and his Distributable Amount shall be paid to him in a lump sum as soon as practicable after the determination is made that he is not such a management or highly compensated employee. ARTICLE III DEFERRALS 3.1 Elections to Defer Base Salary, Bonuses, Fees or Commissions. A Participant may elect in accordance with this Section 3.1 to suspend current payment of his Bonuses, Base Salary, Fees or Commissions and agree to payment of such amounts in future years. (a) General Rule. The Base Salary, Bonuses, Fees and Commissions that a Participant may elect on a deferral form prescribed by the Committee to defer are such items of Compensation which are, with the exception for Bonuses set forth in Section 3.1(b) hereof, wholly earned after the time at which the Participant makes his or her election to defer in accordance with this Section 3.1 and shall be a flat dollar amount or percentage which shall not exceed 100% of the Participant's Base Salary, Bonuses, Fees and/or Commissions, provided that the total amount deferred by a Participant shall be limited in any calendar year, if necessary, to satisfy Social Security taxes (including Medicare), income taxes and employee benefit plan withholding requirements as determined in the sole and absolute discretion of the Committee. 4 8 The minimum deferral which may be made in any Plan Year by a Participant shall not be less than $2,500, provided such minimum deferral can be satisfied from deferrals of Base Salary, Bonus, Fees and/or Commissions. A Participant may separately elect to defer a different amount or percentage with respect to each of his or her Base Salary, Bonuses, Fees and/or Commissions. The Committee may prescribe that all elections pursuant to this Section be made for an entire Plan Year on or before a date in the immediately preceding Plan Year. At the time a deferral election is made the Participant shall select on the prescribed deferral form a Payment Date for all such items of Compensation that are deferred. (b) Initial Election Period. Subject to the provisions of Article II, each newly designated Eligible Employee making his or her first deferral election under the Plan may initially elect to defer Base Salary, Bonuses, Fees and/or Commissions by filing with the Committee an election that conforms to the requirements of this Section 3.1, on a deferral form prescribed by the Committee, no later than the last day of his or her Initial Election Period. Any such new Participant may, in the discretion of the Committee, be permitted to defer any Bonus payable for the year of the election that may have been partially earned, but as to which the probability of payment or the amount of such payment is substantially uncertain at the time of such deferral election. (c) Duration of Deferral Election. An election to defer Base Salary, Bonuses, Fees or Commissions under the Plan shall remain in effect until modified or terminated. A Participant may increase, decrease or terminate a deferral election with respect to Base Salary, Bonuses, Fees or Commissions for any subsequent Plan Year by filing a new election on or before December 31, which election shall be effective on the first day of the next following Plan Year. (d) Elections After the Initial Election Period. Subject to the limitations of Section 3.1(a) above, any Eligible Employee who fails to elect to defer Compensation pursuant to this Section during his or her Initial Election Period may subsequently become a Participant, and any Participant who has terminated a prior Compensation deferral election may elect to again defer Compensation pursuant to this Section, by filing an election, on a form prescribed by the Committee, to defer Compensation as described in Sections 3.1(a) above. An election to defer such Compensation must be filed in a timely manner in accordance with the other provisions of this Section 3.1. 3.2 Discretionary Credits by Company. The Board may, in its sole discretion, agree at any time to contribute and allocate amounts of deferred compensation to Participants hereunder. Such amounts shall be in addition to any deferrals by Participants under Section 3.1 hereof and are herein referred to as "Company Credits." Company Credits may be based on individual or business performance criteria and shall be subject to the same vesting provisions as apply to employer matching contributions in the 401(k) Plan. Participants shall be notified of the terms and provisions of all Company Credits. The Payment Date for Company Credits shall be as set forth by a Participant on a deferral form in effect for the year in which the Company Credits are contributed. 3.3 Deferral of Excess 401(k) Contributions. If the Participant has so elected prior to a Plan Year on the prescribed Compensation deferral form and if such election remains in effect 5 9 for that Plan Year, then all Excess 401(k) Contributions that would otherwise be distributed to the Participant during the Plan Year shall be deferred under the Plan and added to the Participant's Deferral Account under the Plan. The Payment Date for Excess 401(k) Contributions shall be as set forth by the Participant on a deferral form in effect for the year in which the Excess 401(k) Contributions are deferred. 3.4 Deemed Investment Elections. (a) Each Participant shall be entitled to designate, on a form provided by the Committee, the investment funds designated by the Committee in its discretion (which shall include an interest bearing account bearing interest at a fixed or variable rate) that the Participant's Deferral Account will be deemed to be invested in for purposes of determining the amount of earnings (and losses) to be credited (or debited) to that Account. In making the designation pursuant to this Section 3.4, the Participant may specify that all or any multiple of his Deferral Account (equal to or greater than 5% (but not more than 100%) in whole percentage increments) shall be deemed to be invested in one or more of the investment funds selected and communicated from time to time by the Committee (the "Funds"). Effective as of the end of any calendar quarter, a Participant may change the designation made under this Section 3.4 (as to both existing and future deferrals) by filing an election, on a form provided by the Committee, at least 30 days prior to the end of such quarter. If a Participant fails to elect a fund or funds under this Section 3.4, he or she shall be deemed to have elected an interest bearing account designated by the Committee. (b) Although the Participant may designate deemed investments, neither the Company, nor the Committee shall be obligated to actually make any such investments. The Earnings Rate of each of the Fund(s) designated by a Participant shall be used to determine the amount of earnings or losses to be credited or debited to Participant's subaccount for that Fund under Article IV. (c) The Committee shall include among the Funds a Fund or Funds that are deemed to be invested in shares of Common Stock of Elcor Corporation (the "Company Stock Fund"). Any investment into or out of the Company Stock Fund shall be regulated by the Committee so as to comply with any applicable timing or other requirements of Rule 16b-3 promulgated under the Securities Act of 1934. ARTICLE IV DEFERRAL ACCOUNTS 4.1 Deferral Accounts. The Committee shall establish and maintain a Deferral Account for each Participant under the Plan. Each Participant's Deferral Account shall be further divided into separate subaccounts ("investment fund subaccounts"), each of which corresponds to a Fund elected by the Participant pursuant to Section 3.4(a). A Participant's Deferral Account shall be credited or debited as follows: 6 10 (a) No later than the last day of each month (or at such more frequent intervals as may be prescribed by the Committee), the Committee shall credit the investment fund subaccounts of the Participant's Deferral Account with an amount equal to Compensation deferred by the Participant in accordance with the Participant's election under Section 3.1 that would otherwise have been paid to Participant during such month. The portion of the Participant's deferred Compensation that the Participant has elected to be deemed invested in a particular Fund shall be credited to the investment fund subaccount corresponding to that Fund; (b) The Committee shall, as directed by the Board, credit the investment fund subaccounts of the Participant's Deferral Account with an amount equal to any Company Credits that the Board may grant from time to time. (c) The amount of the Maximum 401(k) Contribution for a Participant made pursuant to Section 3.3 shall be deducted pro rata from the various investment subaccounts (excluding the Company Stock Fund) of the Participant at the time specified in Section 3.3. (d) As of the last day of each month, each investment fund subaccount of a Participant's Deferral Account shall be credited (or debited) with earnings (or losses) in an amount equal to that determined by multiplying the balance credited to such investment fund subaccount as of the last day of the preceding month by the Earnings Rate for the corresponding Fund. ARTICLE V VESTING All amounts credited to a Participant's Deferral Account, except for all amounts attributable to Company Credits, shall be 100% vested at all times. All amounts in the Deferral Account that are attributable to Company Credits shall be vested at any particular time according to the vesting schedule applicable to matching contributions in the 401(k) Plan. ARTICLE VI DISTRIBUTIONS 6.1 Normal Distributions. Subject to Section 6.3 below, if a Participant terminates service with the Company and all other controlled group affiliates of Elcor Corporation and has an Account balance of more than $25,000, the Company shall pay such Participant's Distributable Amount to the Participant (and after his or her death to his or her Beneficiary) from among the following optional forms of benefit as elected by the Participant on the most recent effective deferral form executed and given by the Participant and at the time or times elected in such form: (1) A single lump sum distribution beginning on the Participant's Payment Date. (2) Substantially equal monthly, quarterly or annual installments over two (2) to fifteen (15) years beginning on the Participant's Payment Date. 7 11 With respect to any item of income deferred pursuant to this Plan, a Participant may once modify the form he or she has elected for the payment of the deferred item and/or extend the Payment Date that he or she has previously elected with respect to the deferral, provided such modification of the form and/or the Payment Date occurs more than one (1) year before the original Payment Date. In the event a Participant fails to properly elect an optional form of benefits, the Participant's Distributable Amount will be distributed in forty (40) quarterly installments beginning on his or her Payment Date. The Participant's Account shall continue to be credited (or debited) with earnings (or losses) pursuant to Section 4.1 of the Plan until the Participant's entire Distributable Amount under the Plan has been distributed. The foregoing notwithstanding, in the case of a Participant who terminates service with the Company and all other controlled group affiliates of Elcor Corporation and has a Distributable Amount of $25,000 or less, the Distributable Amount shall be paid to the Participant (or after his or her death to his or her Beneficiary) in a lump sum distribution on the Participant's Payment Date. In the event a Participant dies after he has left service with the Company and after distributions have commenced hereunder, the balance of any Distributable Amount shall continue to be paid to the designated Beneficiary in the same mode as it was being paid to the Participant. 6.2 Hardship Distributions. The Committee may, in its sole discretion, permit a distribution to a participant of all or a portion of the Participant's Distributable Amount in the event the Committee determines that such distribution is reasonably needed to satisfy an emergency need arising from an unforeseeable emergency ("Hardship Distribution"). No Hardship Distribution may exceed the amount reasonably needed to satisfy the emergency need. For purposes of this Section, the term "unforeseeable emergency" shall mean severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (as defined in Code section 152(a)) of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of the events beyond the control of the Participant. The circumstances that will constitute an unforeseeable emergency will depend upon the facts of each case, but, in any case, payment may not be made to the extent that such hardship is or may be relieved: (i) through reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the Participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or (iii) by cessation of deferrals under the Plan. 8 12 Examples of what are not considered to be unforeseeable emergencies include the need to send a Participant's child to college or the desire to purchase a home. 6.3 Accelerated Payments Notwithstanding any other provision of this Article VI and regardless of the value of the Account, if a Participant terminates service with the Company for any reason other than death, disability or retirement after attainment of age 62 years (or after attainment of age 70 in the case of Participants who are non-employee directors of Elcor Corporation), the Committee may, in its sole and absolute discretion, elect to override the provisions of any deferral form that has been executed and given by the Participant by (i) disregarding the Payment Date and accelerating the payment of the Participant's Distributable Amount to an earlier date which may be as early as is administratively feasible following such termination of service, and/or (ii) electing to pay such Distributable Amount to the Participant in the form of a single lump sum distribution or in installments over a term that is no longer than the installment payout term elected by the Participant and with a frequency that is no less frequent than the installment frequency elected by the Participant. 6.4 Inability to Locate Participant. In the event that the Committee is unable to locate a Participant or Beneficiary within two years following the required Payment Date, the amount allocated to the related Deferral Account, shall be forfeited and shall accrue no further interest or earnings. If, after such forfeiture, the Participant or Beneficiary later claims such benefit, such benefit shall be reinstated without the accrual of interest or earnings thereon after the Payment Date. ARTICLE VII ADMINISTRATION 7.1 Committee. A committee of individuals (who may, but need not, be members of the Board) shall be appointed by, and serve at the pleasure of, the Board to administer the Plan (the "Committee"). The number of members comprising the Committee shall be determined by the Board which may from time to time vary the number of members. A member of the Committee may resign by delivering a written notice of resignation to the Board. The Board may remove any member by delivering a certified copy of its resolution of removal to such member. Vacancies in the membership of the Committee shall be filled promptly by the Board. 7.2 Committee Action. The Committee shall act at meetings by affirmative vote of a majority of the members of the Committee. Any action permitted to be taken at a meeting may be taken without a meeting if, prior to such action, a written consent to the action is signed by all members of the Committee and such written consent is filed with the minutes of the proceedings of the Committee. A member of the Committee shall not vote or act upon any matter which relates solely to himself or herself as a Participant. The Chairman or any other member or members of 9 13 the Committee designated by the Chairman may execute any certificate or other written direction on behalf of the Committee. 7.3 Powers and Duties of the Committee. (a) The Committee, on behalf of the Participants and their Beneficiaries, shall enforce the Plan in accordance with its terms, shall be charged with the general administration of the Plan, and shall have all powers necessary to accomplish its purposes, including, without limitation, the following: (1) To select the Funds in accordance with Section 3.6(a) hereof; (2) To construe and interpret the terms and provisions of this Plan; (3) To compute and certify to the amount and kind of benefits payable to Participants and their Beneficiaries; (4) To maintain all records that may be necessary for the administration of the Plan; (5) To provide for the disclosure of all information and the filing or provision of all reports and statements to Participants, Beneficiaries or governmental agencies as shall be required by law; (6) To make and publish such rules for the regulation of the Plan and procedures and forms for the administration of the Plan as are not inconsistent with the terms hereof; (7) To appoint a plan administrator or any other agent, and to delegate to them such powers and duties in connection with the administration of the Plan as the Committee may from time to time prescribe; (8) To delegate other persons, including employees of Elcor Corporation and its affiliates, to assist the Committee in the carrying out of its duties hereunder and to act for the Committee; and (9) To take all actions necessary for the administration of the Plan. 7.4 Construction and Interpretation. The Committee shall have full discretion to construe and interpret the terms and provisions of this Plan, which interpretations or construction shall be final and binding on all parties, including, but not limited to, the Company and any Participant or Beneficiary. The Committee shall administer such terms and provisions in a uniform and nondiscriminatory manner and in full accordance with any and all laws applicable to the Plan. 10 14 7.5 Information. To enable the Committee to perform its functions, the Company shall supply full and timely information to the Committee on all matters relating to the Compensation of all Participants, their deaths or other events which cause termination of their participation in the Plan, and such other pertinent facts as the Committee may require. 7.6 Compensation, Expenses and Indemnity. (a) The members of the Committee shall serve without compensation for their services hereunder, except for such Compensation as they may receive as members of the Board of Directors. (b) The Committee is authorized at the expense of Elcor Corporation to employ such legal counsel as it may deem advisable to assist in the performance of its duties hereunder. Expenses and fees in connection with the administration of the Plan shall be paid by Elcor Corporation. (c) To the extent permitted by applicable state law, the Company shall indemnify and save harmless the Committee and each member thereof, the Board of Directors and any delegate of the Committee who is an employee of the Company against any and all expenses, liabilities and claims, including legal fees to defend against such liabilities and claims arising out of their discharge in good faith of responsibilities under or incident to the Plan, other than expenses and liabilities arising out of willful misconduct. This indemnity shall not preclude such further indemnities as may be available under insurance purchased by the Company or provided by the Company under any bylaw, agreement or otherwise, as such indemnities are permitted under state law. 7.7 Quarterly Statements. Under procedures established by the Committee, a Participant shall receive a statement showing the Distributable Amount (broken down by investment fund subaccount) with respect to such Participant's Accounts on a quarterly basis as of each March 31, June 30, September 30 and December 31. 7.8 Disputes. (a) Claim. A person who believes that he or she is being denied a benefit to which he or she is entitled under the Plan (hereinafter referred to as "Claimant") must file a written request for such benefit with the Committee, setting forth his or her claim. The request must be addressed to the President or other equivalent officer of the Committee at its then principal place of business. 11 15 (b) Claim Decision. Upon receipt of a claim, the Committee shall advise the Claimant that a reply will be forthcoming within ninety (90) days and shall, in fact, deliver such reply within such period. The Committee may, however, extend the reply period for an additional ninety (90) days for special circumstances. If the claim is denied in whole or in part, the Committee shall inform the Claimant in writing, using language calculated to be understood by the Claimant, setting forth: (A) the specified reason or reasons for such denial; (B) the specific reference to pertinent provisions of the Plan on which such denial is based; (C) a description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation of why such material or such information is necessary; (D) appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review, the (E) the time limits for requesting a review under subsection (c). (c) Review of Decision. Denials of claims shall be reviewed by the Committee. Within sixty (60) days after the Committee's receipt of a request for review, after considering all materials presented by the Claimant, the Committee will inform the Claimant in writing, in a manner calculated to be understood by the Claimant, of its decision, setting forth the specific reasons for the decision containing specific references to the pertinent provisions of the Plan on which the decision is based. If special circumstances require that the sixty (60) day time period be extended, the Committee will so notify the Claimant and will render the decision as soon as possible, but no later than one hundred twenty (120) days after receipt of the request for review. ARTICLE VIII MISCELLANEOUS 8.1 Unsecured General Creditor. Participants and their Beneficiaries, heirs, successors, and assigns shall have no legal or equitable rights, claims, or interest in any specific property, investments or assets of the Company or of any trust or fund that may be established or purchased by the Company to help satisfy its obligations hereunder. No assets of the Company shall be held in any way as collateral security for the fulfilling of the obligations of the Company under this Plan. Any and all of the Company's assets shall be, and remain, the general unpledged, unrestricted assets of the Company. The Company's obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Company to pay money in the future, and the rights of the Participants and Beneficiaries shall be no greater than those of unsecured general creditors. The Company may satisfy its obligations hereunder by causing a third party to make any of the payments required of the Company hereunder. It is the intention of the Company that this Plan be unfunded for purposes of the Code and for purposes of Title I of ERISA. 12 16 8.2 Restriction Against Assignment. The Company shall pay all amounts payable hereunder only to the person or persons designated pursuant to the provisions of the Plan and not to any other person or corporation. No part of a Participant's Accounts shall be liable for the debts, contracts, or engagements of any Participant, his or her Beneficiary, or successors in interest, nor shall a Participant's Accounts be subject to execution by levy, attachment, or garnishment or by any other legal or equitable proceeding, nor shall any such person have any right to alienate, anticipate, sell, transfer, commute, pledge, encumber, or assign any benefits or payments hereunder in any manner whatsoever. If any Participant, Beneficiary or successor in interest is adjudicated bankrupt or purports to anticipate, alienate, sell, transfer,, commute, assign, pledge, encumber or charge any distribution or payment from the Plan, voluntarily or involuntarily, such distribution or payment shall be null and void and of no force or effect. The foregoing notwithstanding, however, the Company may pay any benefits, as and when they may become due under the terms of this Plan, as ordered by a court of competent jurisdiction in any adjudication involving a Participant's obligations for child support, spousal maintenance, alimony, marital property division or other matrimonial or dependent obligations. 8.3 Withholding. There shall be deducted from each payment made under the Plan or any other Compensation payable to the Participant (or Beneficiary) all taxes and other amounts which are required to be withheld by the Company in respect of such payment or this Plan. The Company shall have the right to reduce any payment (or compensation) of a Participant by the amount of cash sufficient to provide such taxes and amounts. 8.4 Amendment, Modification, Suspension or Termination. The Board may amend, modify, suspend or terminate the Plan in whole or in part, except that no amendment, modification, suspension or termination shall have any retroactive effect to reduce any amounts allocated to a Participant's Accounts and the Plan may not be terminated solely in order to accelerate the payment of benefits. In the event that this Plan is terminated, the amounts credited to a Participant's Accounts shall be distributed to the Participant or, in the event of his or her death, his or her Beneficiary in a lump sum within thirty (30) days following the date of Plan termination. 8.5 Adoption by Affiliates. With the permission of the Board, the Plan may be adopted by any corporation or entity which is a member of a controlled group (within the meaning of Section 414(b) or (c) of the Code) of which Elcor Corporation is a component member. Such adoption may be on such terms and conditions as the Board may prescribe. In the event of such an adoption the term "Company" shall, when used herein, refer to Elcor Corporation and each such other adopting corporation or entity. 13 17 8.6 Governing Law. This Plan shall be construed, governed and administered in accordance with the laws of the State of Texas. 8.7 Receipt of Release. Any payment to a Participant or the Participant's Beneficiary in accordance with the provisions of the Plan shall, to the extent thereof, be in full satisfaction of all claims against the Committee and the Company. The Committee may require such Participant or Beneficiary, as a condition precedent to any such payment, to execute a receipt and release to such effect. 8.8 Payments on Behalf of Persons Under Incapacity. In the event that any amount becomes payable under the Plan to a person who, in the sole judgment of the Committee, is considered by reason of physical or mental condition to be unable to give a valid receipt therefore, the Committee may direct that such payment be made to any person determined by the Committee, in its sole judgment, to have assumed the guardianship or care of such person. Any payment made pursuant to such determination shall constitute a full release and discharge of the Committee and the Company. 8.9 Limitation of Rights and Service Relationship. This Plan shall not be construed as a contract of employment or other service. Neither the establishment of the Plan, nor the creating of any fund or account, nor the payment of any benefits shall be construed as giving to any Participant or other person any legal or equitable right against the Company, except as provided in the Plan and Trust; and in no event shall the terms of employment or other service of any employee or Participant be modified or in any way be affected by the provisions of the Plan and Trust. 8.10 Headings. Headings and subheadings in this Plan are inserted for convenience of reference only and are not to be considered in the construction of the provisions hereof. IN WITNESS WHEREOF, Elcor Corporation has caused this document to be executed by its duly authorized officer as of the Effective Date. ELCOR CORPORATION By: /s/ Harold K. Work -------------------------------------- Harold K. Work, Chairman of the Board, President and Chief Executive Officer 14 EX-21 3 d80378ex21.txt SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT 1. Elk Corporation of Dallas, a Delaware corporation, which owns all of the outstanding stock of (a) Elk Corporation of America, a Nevada corporation, (b) Elk Corporation of Alabama, a Delaware corporation, (c) Elk Corporation of Texas, a Nevada corporation, and (d) Elk Corporation of Arkansas, an Arkansas corporation. 2. Cybershield, Inc., a Delaware corporation, which owns all of the outstanding stock of (a) Cybershield of Georgia, Inc. (formerly YDK America, Inc.), a Georgia corporation, (b) Cybershield of Texas, Inc., a Delaware corporation, and (c) Cybershield International, Inc., a Delaware corporation. 3. Elcor Management Corporation, a Nevada corporation. 4. NELPA, Inc., a Nevada corporation. 5. Elcor Service Limited Partnership, a Texas limited partnership. 6. Chromium Corporation, a Delaware corporation. 7. OEL, LTD, d/b/a Ortloff Engineers, LTD, a Nevada corporation. 8. Ortloff de Venezuela, S.A., a Republic of Venezuela corporation. EX-23 4 d80378ex23.txt CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of reference of our report dated August 14, 2000, included and incorporated by reference in Elcor Corporation's Form 10-K for the year ended June 30, 2000, into Elcor Corporation's previously filed Registration Statement on Form S-8 (File No. 2087437) and For S-3 (File No. 2-87436). /s/Arthur Andersen LLP ---------------------- Arthur Andersen LLP Dallas, Texas September 26, 2000 EX-27.1 5 d80378ex27-1.txt FINANCIAL DATA SCHEDULE
5 YEAR JUN-30-2000 JUL-01-1999 JUN-30-2000 4,702 0 72,675 963 40,965 124,513 279,028 83,924 322,574 48,287 91,300 0 0 19,988 141,916 322,574 350,275 350,275 262,517 302,216 0 0 1,355 48,189 18,257 29,932 0 0 0 29,932 1.53 1.49
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